The rules of the credit game are confusing, Yes.
but Too many credit cards only hurt you in one instance.
There is a general fear of credit cards from most of our clients because most people think of credit cards as a form of debt; however, they’re only debt if you don’t pay them off regularly. Because of this fear, though, many clients don’t use credit cards at all or only use one or two. They believe the myth that too many credit cards are bad for your credit score.
The reality: multiple credit cards actually help your credit score. Each credit card gives you credit availability, which is a component of, credit utilization, which makes up 30% of your credit score. Credit utilization is the amount of balances you have on your cards vs. how much you have available. Your credit utilization number is looked at over all of your credit cards. So, if you have five credit cards each with $10,000 of available credit and you have a $1,000 balance on one of your cards, your credit utilization is 2%. You should aim to keep your credit utilization at 35% or less.
Multiple credit cards is only a problem if you have multiple cards all with high credit balances on them. Then your credit utilization number will be significantly lower and it impacts 30% of your credit score.
When does it make sense to have multiple cards? We recommend this for clients who utilize credit card sign up bonuses to help achieve their dreams of travel. They will open up one card, spend on the card until they achieve the rewards and then start again on a new card, all while not keeping balances on the cards. Our clients who successfully utilize this travel hack see their credit scores increase 20 – 50 points over time.