Is There Any Way You Can Have Too Much Credit?
Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It may not have been previewed, commissioned or otherwise endorsed by any of our network partners.
Credit card rewards programs are so competitive these days that there’s a high-earning card for just about every common expense: from groceries to gas to airfare, restaurant purchases and more. The offers are so tempting that it can be hard to resist applying for a new one — especially since many cards may also come with a big sign-up bonus.
But as your stack of plastic grows, you may begin to wonder just how big an impact all these cards are having on your credit score. Is there such a thing as having too many credit cards?
You cannot hurt your credit score by simply having a lot of credit cards. But there are some risks that you need to watch out for.
Credit cards: Too much of a good thing
When it comes to your credit score, “there’s no such thing as too many credit cards,” said Jeff Richardson, vice president of communications at VantageScore in New York City. “There is nothing in the [VantageScore] model that looks at the number of credit cards somebody has or either rewards them or penalizes them.”
What the credit scoring companies do look at, though, is how much credit you have available, how responsibly you’ve been managing it and how many loan accounts you’ve opened recently.
That said, some lenders may be less forgiving. Anecdotally, a number of cardholders have reported being rejected for credit, in part, because of “too many revolving accounts.”
According to Nessa Feddis, a senior vice president at the American Bankers Association, every lender has its own underwriting policy. So it’s possible a lender may consider the number of revolving accounts you have open. However, it’s not likely.
“Generally, holding multiple lines of credit will not cause a credit application to be denied unless the person is close to the credit limits of those accounts,” Feddis said. However, “there may be exceptions, depending on the individual creditor’s policies, the applicant’s particular circumstances and the types of lines of credit.”
In the past, having a lot of open card accounts might have counted as a negative, she added. But that thinking has largely become out of date. “It evolved when data showed that having a lot of credit available, but not using it, demonstrated good financial management,” Feddis said.
The risks of having too many credit cards
If you apply for a whole bunch of cards in a relatively short period, that could hamper your credit score — at least for a little while. “Each time you open a new account, your score can decline slightly,” Richardson said.
A series of hard inquiries can also damage it, he said. When a lender pulls your credit, a hard inquiry will be recorded on your reports, and it will slightly ding your credit score.
Your score will probably recover quickly since the impact doesn’t last long. It may even benefit you over the long run since you’ll have more credit available, which will help bring down your credit utilization rate. However, lenders typically don’t like to see you opening a lot of new accounts at once.
Adding more cards to your credit report could also shorten the average length of your credit history, said Can Arkali, principal scientist for analytics and scores development at FICO® in San Francisco. That, too, can weaken your scores. “All of a sudden, you may start looking like an inexperienced credit customer,” he said.
The biggest risk you take when you open a number of new cards, though, is that you could start to run up too much debt and fall behind on payments.
“Based on the research we’ve been conducting for years, there’s empirical evidence that once you have too many credit cards, it actually makes it harder for you to stay on top of those obligations,” Arkali said.
You may also run into trouble if you try to get too strategic with your rewards earnings. Some rewards hunters, for example, may carry a stack of different cards for everyday expenses.
For example, you might use one card for groceries, another for gas, a different card for dining, another one for travel and a flat-rate card for all your other expenses. It’s a strategy that can yield huge savings. But it only works if you stay organized and avoid letting any of your cards slip. If you fall behind on one or more of your bills, it will severely bruise your credit score.
In addition, too many cards could make it tempting for you to overcharge, Richardson warned. “All of a sudden, you can find yourself in over your head,” racking up debts that carry steep interest rates.
Tips on managing multiple credit cards
Before you pursue an aggressive rewards strategy and accumulate a lot of cards, know what kind of borrower you are first, Richardson advised.
If you’re the type of borrower who never misses a payment and always pays their bills in full, then you may have no trouble juggling a lot of credit cards. You may even boost your credit score by proving how well you can handle a lot of credit.
But if you’re disorganized or tend to carry balances, owning more than a few cards could be too big a risk.
Stay on track with your bills by setting up automated payments. Also consider carrying just some of your cards regularly. That could make it easier for you to manage them. Finally, don’t forget to continue using your oldest cards, even as you accumulate new ones. Closing an old credit card — or letting your creditor close it due to inactivity — could also harm your credit score.
The bottom line
Owning a lot of cards probably won’t hurt you if you’re sure you can manage them responsibly. It may even help.
But your strategy could easily go sour. Before you jump on an application, be honest with yourself and think carefully about your habits. The last thing you want to do is negate all your rewards with a lot of interest or a negative mark on your credit reports.