You probably have at least one credit card offer in your mail each week. Credit card companies create amazing promotions, like zero-percent interest for 18 months or free points to pay for goods and services. Should you take advantage of these perks by signing up for multiple cards?
The number of credit card accounts you have influences your credit score. If you are unsure if you have too many or not enough, find out what you need to know about having multiple cards in your pocket.
Did you know that having multiple credit cards is actually good for your credit score? While it is far more important to properly manage your debt, the credit bureaus take the number of revolving credit accounts you have into consideration.
Each of your credit cards has a limit or a maximum amount you can use. One of the factors that impacts your score is your utilization rate. A utilization rate is the ratio of how much available credit you have and how much you have spent.
For example, if you have a balance of $4,000 on a card with a credit limit of $10,000, you are using 40 percent.
Lenders and agencies look at credit utilization and prefer prospective borrowers have a rate of 30 percent or less. Your maximum credit amount increases when you obtain another credit card.
So, using the above example, a new card with a $5,000 limit will increase your total credit to $15,000, and your existing $4,000 debt makes your utilization rate 26 percent.
To benefit your score, it is important to consider that each of your credit cards should have a rate of less than 30 percent. You could put new expenses on the new credit card while you pay off the one with a higher balance. Or, you can take advantage of a promotion and transfer your debt onto a card with zero percent interest.
You may also want multiple cards to help you keep track of certain expenses or for different benefits, like points and cashback.