It’s true: There’s a strong connection between how you use your credit cards and your credit score. After all, plastic provides an easy way to show that you’re responsible with borrowed money.
But if one card is good for your credit, are two (or more) better? The answer: not directly. For details, take a look at the information below.
Technically, you only need one card to build a good score
Using credit consistently and responsibly is the only way to build a good credit score. For most people, the easiest way to do this is to get a credit card, then use it conscientiously and make payments on time. This will add up to a lot of positive information on your credit reports, and, consequently, a high credit score.
But will you reap even more credit score benefits by having multiple credit cards? To answer this question, we reached out to Anthony Sprauve, senior consumer credit specialist at FICO, which is responsible for the most widely used credit score in the United States. In an email, Sprauve told us:
“You don’t need multiple credit card accounts to have a good FICO score. You can have a high score with one well-managed credit card account.”
So building a good credit score is as easy as getting one credit card and using it responsibly. But remember that 10% of your FICO score is determined by the mix of credit accounts on your report. Your card counts as a revolving account, and you’ll get a boost if you’re judiciously using installment credit, too. Sprauve explained:
“You are rewarded for having multiple kinds of accounts [on your credit reports] – auto loan, mortgage, line of credit, etc. – but you are not penalized if you don’t.”
Adding extra plastic might indirectly give you a boost
Even though adding extra credit cards to your profile won’t directly help your FICO score, there is the possibility it could provide an indirect lift. Here’s why: Your credit utilization ratio, which heavily influences the 30% of your score determined by amounts owed, is calculated by dividing the amount you owe on your cards by your overall credit limit. If it exceeds 30%, your credit score could drop.
Your credit utilization ratio is calculated on each of your individual cards, and across all the cards in your name. If you’re above the 30% utilization threshold on one of your cards and you open additional plastic, but then don’t use it, you’ll be driving down your overall credit utilization ratio. In the long run, this could have a positive effect on your score, especially if you’re working to pay down your other card in the meantime.
Using this strategy is tricky, though, and there are some drawbacks to consider. For one thing, opening a new card will cause your score to take a small, short-term hit. This is because getting new plastic requires a hard inquiry to your credit report, which usually results in the immediate loss of a few points.
Also, every time you open a new card, you’re lowering the average age of your credit accounts. This could negatively impact the 15% of your credit score determined by the length of your credit history, especially if you have a short credit history to begin with.
Finally, opening a new credit card might tempt you to overspend. Running up a big balance you can’t pay off isn’t good for your credit score or your overall financial health, so take an honest inventory of your spending habits before applying for a second card.
(Also, be careful not to open too many credit cards at once. Several credit card applications in a short window of time is correlated with credit risk, and your score will drop as a result. If getting one additional card will substantially improve your credit utilization ratio, applying might be smart — but be sure to wait at least six months before you get another.
Tips for achieving a solid score
If you’re trying to build and maintain good credit, you’ll need to show a strong and consistent track record of managing borrowed money responsibly. Specifically, it’s important to:
- Pay all your bills on time. No exceptions!
- Avoid using more than 30% of the credit available on each of your credit cards, at all times during the month.
- Use credit regularly.
- Only apply for credit you actually need.
- Review your three credit reports at least once per year for accuracy. If you spot an error, take steps to have it corrected.
The takeaway: Having more than one credit card won’t directly improve your credit score. But opening a second card could give your score an indirect boost by improving your credit utilization ratio.
Multiple credit cards image via Shutterstock