Multiple Credit Cards: How Do They Affect Your Credit Score?
Before we start, it is essential to know what is meant by credit score and reasons affecting it.
Credit score is a simple numeric representation that depicts your credit history. Your potential lenders will find a higher credit card score before lending you, as a higher credit card score depicts lower lending risks. Now the question arises; how many credits cards can you have to keep the credit scores high. A simple answer is that a person can keep several credit cards as long as he/she maintains the credit score. Though if you have different credit cards which are relatively new, then your credit score for credit card can be low as it lowers the average count age.
How is the credit score of your credit card determined?
The credit scores are calculated roughly based on the below five factors of which few factors have considerably high weightage than the others.
History of your payments- This is the biggest score factor as it carries weightage of about 35%. Credit cards stand as the biggest variable while considering your credit payments which are done from the debts you hold. Carrying multiple credit cards can be a problem when you have to maintain the payments every month for each of the cards. And late payments can lead to reporting to the credit bureaus eventually lowering your credit score.
Debt to credit ratio- This measures the ratio of the outstanding debts of the credit cards to the available credit, hence also referred to as credit utilisation. The ratio carries a weightage of 30% where your scores are affected if it exceeds the 30% limit. Multiple credit cards can help you to increase your available credit score to the outstanding debt, but it should not exceed the 30% limit.
Average age of the credit card- This can be a factor for those having new multiple credit cards as the age of the credit card adds 15% weightage to your credit score. People having long credit card history of about 11 years or 25 years hold an excellent credit card score. A short credit card history can decrease your credit score and adding new credit cards can drag down the average age of your credit cards.
Credit types: The type of credit that you hold also affects your credit card score to about 10%. Credit bureaus often search for a mixed credit portfolio which includes retail accounts, mortgage, instalment loans or a mix of credit cards. Keeping the same credit portfolio with only multiple credit cards can affect the credit scores too.
New credit account- When you start a new credit account, it eventually leads to a drop of your credit score. Too many credit accounts will lead to too many inquiries which will eventually signal the credit bureaus of increased credit risk. It is essential not to have too many credit cards in a short tenure as this factor effects your credit score by 10%.
If you are planning to have multiple credit cards, then you should not own them in a short span as this will decrease your average credit age thus lowering your credit card score. If you already possess multiple cards, then it would be wise not to close the accounts as this will increase the total credit availability thus increasing your credit score. Instead, you can opt for using one or two for a month so that you can keep a track about the payments, have a regular credit score check and also keep adding to the credit availability of your debt-credit ratio.
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