Multiple Credit Cards: How Do They Affect Your Credit Score?

The simple answer to “How many Credit Cards can I have?” is that you can have several Credit Cards. However, it’s important to note that having too many new Credit Cards can slightly lower your credit score since it reduces the average age of your credit history. Having multiple Cards also means you must manage them responsibly. To maintain a healthy credit score, always pay your Credit Card bills on time and keep your credit usage low.

How is your credit score determined?

Your credit score is calculated roughly based on the five factors given below. Some factors have higher weightage compared to others. 

1. History of payments

This is the most important factor as it carries a weightage of about 35%. Having multiple Credit Cards can become a problem since you have to make timely and full payments every month for every Card. Late payments can be reported to the credit bureaus, which can eventually lower your credit score.

2. Credit Utilisation Ratio or Debt to Credit Ratio

This is ratio of the outstanding debts (payments due) on your Credit Cards to your credit limit. This carries about ~30% weightage while calculating your credit score. Multiple Credit Cards can help you increase your total credit limit and thus positively impact your credit score-  but remember that the ideal Credit Utilisation Ratio is  30%.

3. Average Credit Age

This can be an important factor for users who have multiple newly-acquired Credit Cards, since credit age has about 15% weightage in calculating your credit score. People having a long credit history generally have good credit scores. A short credit history can lower your credit score. So be aware that when you acquire new Credit Cards, they can pull down your average credit age.

4. Credit Types / Credit Mix

The type of credit that you hold also affects your credit score. This metric has a weightage of about 10%. Credit bureaus often search for a mixed credit portfolio which includes mortgage and other instalment loans or a mix of Credit Cards. Keeping a fixed credit portfolio with only Credit Cards (i.e. no other forms of credit) can affect your credit score.

5. Number of Inquiries

When you apply for a new credit account (e.g. a Credit Card or Loan or Overdraft), it generates an inquiry to the credit bureaus. Too many inquiries in a short time indicate increased credit risk, which leads to a drop in your credit score. This factor impacts your credit score by ~10%. Hence, it is important to not apply for too many Credit Cards within a short period.

Conclusion

If you are planning to hold multiple Credit cards, ensure that you do not apply for them in a short span of time as this will decrease your average credit age which will consequently lower your credit score. If you already possess multiple Credit Cards, then it would be wise to not close them, as closing your Cards will decrease your total credit limit, which will lead to a drop in your credit score. Opt for using 1-2 Credit Cards in a month so that you can easily keep a track of outstanding dues and pay their bills on time.

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