Do You Need Multiple Credit Cards to Build Good Credit?

You've been using that one credit card responsibly and your credit score has reflected that good behavior.

Maybe you're about to get a loan and want to improve your credit profile. Maybe you're just chasing a perfect credit score.

Whatever the reason, there usually are ways to give your credit a boost.

Since you've already got a credit card, you might wonder...

Do you need another credit card help you build good credit faster?

No, But Multiple Cards Can Help

The short answer is:

No, you do not need to have more than one credit card to improve your credit score.

However, having multiple credit cards can help.

Your credit score is simply a numerical representation of your trustworthiness when it comes to borrowing money.

A high score means you’re very likely to pay your bills on time, so lenders will be happy to lend to you. A low score means you’re less likely to make on-time payments, so lenders are more likely to lose money that they lend to you.

To build your credit score, all you have to do is demonstrate your financial trustworthiness.

A one-card approach

In theory:

All you need to do this is one credit card.

If you always pay your bill on time and never miss a payment, you’re doing a good job of showing your ability to handle credit.

Multiple cards

Having more than one card can simply speed up the process of building your credit.

Since you’re making twice as many payments, you’re showing your ability to pay your debts twice as well.

While it won’t translate to a doubling in the speed of your credit score’s growth, it will make your score rise more quickly.

Having two cards can also contribute to improving other factors of your credit score.

How Your Credit Score is Determined

The most important portion of your credit score is your payment history.

It makes sense:

Lenders mostly care about whether or not you’ll pay back your loan.

Showing that you can make timely payments will make lenders confident about lending money to you. Missing even one payment can have a massive negative effect on your credit.

What matters most:

The credit score factor that will be most affected by having multiple credit cards is the amount you owe.

This can be broken down into two sub-factors: the actual amount you owe and your credit utilization ratio.

Amount owed

The total amount you owe plays a large part in determining your credit score.

The more debt that you have, the worse your credit score will be.

It’s easy to understand why this is the case. Lenders want to know that you’ll pay them back for the money that you borrow.

If you have $0 in debt and ask to borrow $10,000, it’s reasonable to believe that you can pay that loan back.

If you already have $400,000 in debt and ask to borrow $10,000 more, a lender may wonder why you need more money if you’ve already borrowed so much.

To keep your credit score as high as possible, try to keep your total debt as low as possible.

Credit utilization ratio

Related to the total amount you owe is your credit utilization ratio.

Whenever you get a credit card, the card issuer gives you a credit limit. This is the maximum amount you are allowed to spend using the card.

So, if your credit card has a $10,000 credit limit, you cannot spend more than $10,000 without paying some of the balance off.

Your credit utilization ratio is the ratio of your debts across all your credit cards to your credit limits across all of your cards.

This example illustrates how your credit utilization ratio is calculated.

  • Card A: $250 balance/$1,000 credit limit
  • Card B: $500 balance/$5,000 credit limit
  • Card C: $100 balance/$12,500 credit limit

Your total balance across your three credit cards is $250 + $500 + $100 = $850.

Your total credit limit across your three cards is $1,000 + $5,000 + $12,500.

Your credit utilization ratio is $850 / $12,500 = 6.8%.

Having a low credit utilization ratio is good for your credit score.

Maxing out your credit limits shows that you are in a poor financial situation, or simply have trouble controlling your spending.

So:

Having low card balances shows that you have good debt management.

How an Extra Credit Card Impacts Your Credit Score

Applying for another credit card can impact your credit score in a few ways.

Higher total credit limit

If you are approved for another credit card, that card will come with its own credit limit.

That means that your total credit limits will increase.

This can be good for your credit score because it will improve your credit utilization ratio.

If you maintain the same credit card balance but have a higher total limit, your utilization ratio will decrease.

Watch out:

Higher credit limits can also be dangerous.

If you use your card too much you could wind up deeper in debt with two cards than if you only had one. This will hurt your score because the more debt you have, the worse your score will be.

Average age of accounts

Another factor that getting a new credit card will impact is the average age of your accounts.

Lenders don’t want to lend to people who jump from lender to lender all the time. Instead, lenders want to form long-term relationships with borrowers.

The truth is:

Banks like this because long-term customers mean more profit for the bank.

Every time you open a new loan, the average age of your credit accounts decreases. Consider this example:

Example of average age of credit accounts

Credit line Age
Credit Card A 37
Credit Card B 24
Auto Loan 10
Student Loan 49
AVERAGE 30

The average age of our accounts is currently (49 + 37 + 24 + 10) / 4 = 30 months.

If you open another account, your average age of accounts will drop, because you’ll have a total of five cards. The calculation will become (49 + 37 + 24 + 10 + 0) / 5 = 24 months.

Over time, the impact of opening a new account will go down and your score will rise.

In fact...

Having more cards will reduce the impact that opening a new card has on your credit.

This is because the more cards you have, the less effect that one new card has on the average age of your accounts.

New credit inquiry

Another thing that will appear on your credit report when you apply for a new credit card is a credit inquiry.

What we know:

This will drop your score by a few points.

Each time you apply for a loan, the lender will request a copy of your credit report from one of the major credit bureaus.

The credit bureau will send the copy of your report, then make note of this inquiry on your credit report.

Each credit inquiry that appears on your report drops your score by a few points.

This is because applying for a lot of loans in a short amount of time is seen as a risky behavior.

If you need to borrow a lot of money, you might have trouble paying it back.

It's not all bad...

The effect of each credit inquiry will decrease over time until the inquiry falls off your report after two years.

The benefits of using a second credit card properly can often be worth the short-term drop in credit score from applying for one.

How to Use Multiple Credit Cards to Build Credit

If you want to use multiple credit cards to build, follow these tips.

Keep low balances

One of the most important parts of your credit score, making up nearly a third of your score, is the amount you owe.

Keeping a low balance on your credit cards is an important part of having good credit.

It will reduce both your total amount owed and your credit utilization ratio. Both of these things will give your score a boost.

Ask for a credit limit increase every 6 months

Getting a new credit card isn’t the only way to reduce your credit utilization ratio.

Many credit card issuers will be willing to offer you’re a credit limit increase on occasion.

As your credit score improves and your income increases, lenders will extend you more credit.

Most card issuers will only offer a credit limit increase once in a while. Most frequently, you’ll be limited to requesting a credit limit increase every six months.

Making the request as often as possible can help you get the highest limit that you can.

Note: Some card issuers will make a hard pull on your credit if you request a credit limit increase.

This can cause a short-term drop in your credit score.

Conclusion

While you don’t need multiple credit cards, having multiple cards can help your credit score improve more quickly.

Just make sure that you use your cards responsibly because having more credit available to you means it is easier for you to fall deep into debt.

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