Your credit score is the product of a complex algorithm that factors in numerous variables. The number of credit cards you have is a portion of that mix, but it’s not one of the most important. In fact, the actual number of your credit cards is practically irrelevant compared to the big movers of your credit score, like how you use them. Here’s a look at what exactly goes into a credit score, along with an explanation of what you need to do to get or maintain top-tier credit.
Credit Score Components
The industry-standard FICO score has five main components:
- Payment history: 35% of score
- Amounts owed: 30% of score
- Length of credit history: 15% of score
- Credit mix: 10% of score
- New credit: 10% of score
As you can see from this breakdown, nearly two-thirds of your credit score is based on your payment history and the amount you owe.
What Happens When You Open a New Credit Card?
Any time you open a new credit card, your credit score will likely dip by a few points. This is because opening a new card affects two components of your credit score: new credit and length of credit history. Opening a new card adversely affects the 10% of your score dedicated to new credit, while adding the “zero” age of the new card will reduce the total length of your credit history, which makes up 15% of your score. However, this small dip in your score is likely to be temporary as long as the main components of your score remain solid.
Is There Such a Thing as Having Too Many Credit Cards?
In and of itself, there’s nothing wrong with having “too many” credit cards, at least in terms of your credit score. Frequently opening new cards can lower the “new credit” portion of your score, and obviously running up balances on multiple cards is a big no-no when it comes to obtaining a good credit score. But there are ancillary concerns that make having too many credit cards a potential problem, from having to pay multiple annual fees to not being able to keep track of where you’re spending your money.
Should I Close Some Credit Card Accounts If I Have Too Many?
Generally speaking, if you have so many credit cards that you’re having trouble keeping track of them, you should close some accounts. However, you should be strategic about how you do it. Whenever possible, you should keep your oldest credit cards so that you don’t hurt the “length of credit history” portion of your score. However, if you’re paying a high annual fee for a card you never use, that should override any concerns you have about losing a few points for your age of credit. A larger concern might be if you carry outstanding balances on any of your cards. In that case, closing any cards might raise your credit utilization, as you’ll have a smaller total amount of credit available. As your credit utilization is part of the “amount owed” portion of your credit score, which carries a 30% weighting, closing credit accounts when you have any outstanding balances can cause significant damage.
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