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Does Having More Credit Cards Hurt Your Credit?

By Edited Jul 19, 2016 0 0

Should I close credit cards I don't use?

Should I close credit cards I don't use?

Many of us have several credit cards. It's not uncommon to have as many as ten or even twenty cards at any given time. There's always a reason. This one gives you so many miles and this other one gives you the such and such benefit. This is why so many people find themselves asking: "Does having more credit cards hurt your credit?"

The answer is not as simple as you may think. Companies like Equifax and Fico make boatloads of money by charging you to find out your own credit score. They have complex secret algorithms that would fill a library to figure out exactly where you fit on the scale. Because it's business, they won't give much information away for free for fear of making themselves irrelevant. Fico however, has released some vague details about just how they calculate a credit score. This information can give us a bit of an idea whether or not having more credit cards hurts your credit score. 

Fico says that your payment history accounts for 35% of your overall credit score and it is the single most important factor in determining your score. The relationship that having multiple credit accounts open has with your credit score is indirect, but you're more likely to be missing payments if you owe lots of money on multiple cards so I would say that it is a factor.

What happens if you don't pay your credit cards?

You will be hassled with endless phone calls, emails, calls at work etc. Charge card companies are better than anybody on earth at collecting their money. They and the collections companies that they sell debt to have been known to threaten, harass, intimidate and otherwise bother you until you pay.

Most people don't have this problem, but it is 35% of your score for a reason. It's the single most important thing that companies consider before issuing you credit. The best way to save yourself from having to worry what happens if you don't pay your credit cards is to make sure that you never carry a balance month to month. Believe it or not, the best policy with high-interest credit is just to pay it off as soon as you can and not carry a balance.

According to Fico, 30% of your credit score is based on how much debt you have overall. I think it's reasonable to assume that if you have multiple credit cards you likely have more debt on those cards than somebody who only has one. Having multiple accounts could indirectly affect your score in this way.

Additionally, 10% of your credit score is calculated by how much new credit you have. If you have opened several revolving credit accounts in a short period of time Fico sees that as a higher risk than if you have more balanced, long-term credit availability. Again, this is an indirect effect of having more cards. It's possible to have lots of cards and have applied for them all over time. In that case, you may be okay.

Should I close credit cards I don't use?

It certainly can't hurt. You save yourself both the potential that having extra charge cards will affect your score and you know you won't be tempted to spend on cards that you don't have. I firmly believe that you should close and and all credit cards that you don't use and pay off those that you do. Just my opinion.

So does having more credit cards hurt your credit? The answer is no...not necessarily. It does however put you in a position where you can damage your credit score quite easily by not being completely responsible with the credit that you do have access to. The best way to ensure that your credit score increases over time is to use debt wisely, which means in moderation and when necessary or beneficial. That can be a hard policy to keep when you're looking at that shiny new laptop that you want. Best to not even have the temptation. Just my $.02.

You may also be interested in:

How To Start Saving Money

 Why Am I Broke? - Habits That Are Keeping Your Bank Account Empty

 

 

 

 

Dave Ramsay's Plan For Financial Peace

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