How will having multiple credit cards impact my credit score?
Is it good to have multiple credit cards? The answer depends on your financial habits. Do you stay on top of bills and watch your spending? Have you ever unintentionally let bills fall through the cracks?
Ultimately, having multiple credit cards on your report won't negatively impact your credit score, assuming you pay your bills on time and in full. That's the short answer. Now, let's go a little deeper.
"Chip away at your credit card balance whenever you can."
Credit utilization: What it is and why it matters
Credit utilization refers to the amount of available credit you can use. For example, let's say you have two credit cards: One from Capital One with a $10,000 limit , and another from American Express with a $7,000 limit. Your total available credit amounts of $17,000.
Let's say you buy a $1,200 computer with your Capital One card and pay for a $1,100 guitar with your American Express card. So, your total balance across both credit cards is $2,300. Although these are both large purchases, your credit utilization rate isn't as bad as you think: around 13 percent. A low percentage such as this may improve your credit score.
That doesn't mean you should let those balances sit, however. You're better off paying more than the minimum payment on your card if you can afford it. Discover noted carrying a high balance over time can actually hurt your credit score.
Let's revisit the example above. If your minimum payment on the Capital One card is $100, but you can afford to pay $150, then pay the larger amount. Bottom line: chip away at your balance whenever you can. If you have have the financial freedom to pay off the balance completely, do so.
Tips for managing multiple credit cards
Now that you know having multiple credit cards can benefit you, how do you stay on top of payments and keep your reoccurring balance low? There are three simple tactics you can take:
- Reserve one for monthly expenses: Use one credit card to pay for a monthly gym membership, magazine subscription or the like. Businesses who provide subscription-based services have gotten pretty good about sending you emails every time they bill you. These reminders will help you keep this credit card front of mind.
- Use one credit card for gas: It may only cost you $30 or so to fill up your tank. Every time you pay for gas, go to your credit card's online portal and pay off the balance later in the day. This will help you build good credit history.
- Set a mobile notification: Each of your credit cards may have different bill due dates. Set a reminder to pay your balances three days before the first bill is due. Nothing like a smartphone calendar app to make sure you don't forget about the payments!
Overall, just make sure you're diligent. When it comes to buy a house or take out a car loan, your financial responsibility will pay off.