How Many Open Charge Cards should You Have?

Having open charge cards can both help and hurt your credit score depending on how many you have and the limits of each. Basically, it is a good thing to have a couple of different charge cards at your disposal. If you have too many, though, you may see lenders shy away from making loans to you.

Why you should have a Few Cards

You should have more than one card open to expand credit limits. Your total credit limit is one of the factors used to determine your credit score. Borrowers with very low limits are typically seen as less creditworthy. Borrowers with higher limits, on the other hand, give the appearance of lender confidence. If you can only secure a credit card with a $3000 limit, then you may consider also having a secondary card. The secondary card can also be extended to a sum of $3,000, raising your total credit limit to $6,000. This shows more confidence in your ability to manage credit.

Also, your debt to credit ratios are lower. The total amount of your credit being used at any given time is taken into account as well. For example, if you have a $1,000 balance on a $3,000 credit line, you would be using over 30% of your available credit. However, if you have that additional $3,000 line, then you will only be using about 17% of your total limits. This will be more favorable when your credit score is calculated. The more favorable your debt to credit ratio, the more likely you will be to receive a good loan for your mortgage or automobile financing.

When to Close Unnecessary Cards

Lenders fear too much credit, if you have $30,000 worth of available credit, a lender may be afraid to extend you additional loans. Consider this scenario: Today, you have only $2,000 of debt when you apply for a new loan. The lender extends you a $20,000 loan. The total monthly payments you have are very manageable for the time being. However, you then use the entire sum of your additional $28,000 of credit to make a large purchase. Now the total debt you have is $50,000, and the payments can become very unmanageable. The lender who extended you the $20,000 is all of a sudden working with a borrower who has a high debt balance. For this reason, a lender may back away from extending you a loan if your total limits are too high for your income.

You should also close your cards if the bills become unmanageable. Ultimately, having only a few credit cards can also help you manage bills. Most people find they have a harder time paying many bills each month than paying just one or two. You may have one bill slip past your watchful eye if you have 10 open credit lines. As such, it can be advisable to have just a few bills and ensure they are paid each month. This can help you to avoid missed payments, which are the leading cause of instant credit score drops.

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