What is the ideal number of credit cards for a good credit score?

In general, having a mix of different types of credit accounts, including credit cards, can affect your credit score positively, as long as they are managed responsibly. 

However, it’s essential to avoid opening too many credit cards at once, as this may lower your average account age and raise the risk of missing payments. For example, Ashish Verma, 30-year-old data analyst, received a credit card with ₹10 lakh maximum limit in January 2024.  

He should, therefore, refrain from applying for another credit card for the next few months. However, he can apply for raising the maximum limit of this card after using it for a few months in case the need so arises.

ALSO READ: How do student loans influence your credit score?

These are some of the key factors which investors must consider while determining the ideal number of credit cards.

These factors include the following:

Payment history: Making payments on time is one of the key factors which influence your credit score. If you can manage a number of credit card payments in a responsible way, it shows positively on your credit history.

Credit Utilisation: This is the ratio of your credit card balances to your credit limits. It is  important to keep your credit utilisation low (i.e., lower than below 30%) to maintain a good credit score. Having multiple credit cards can help spread out your balances and keep utilisation lower.

Financial responsibility: One should consider your potential to manage multiple credit cards responsibly. If you are vulnerable to overspending or missing payments, having fewer credit cards could be a better option to avoid financial strain and potential damage to your credit score.

Credit mix: Lenders like to see a diverse mix of credit types, including credit cards, instalment loans, and mortgages. Having a couple of credit cards, along with other types of credit, can contribute to a healthier credit mix.

Eventually, the key to maintaining a good credit score regardless of the number of credit cards is believed to be a responsible credit management. 

This includes paying your bills on time, keeping your credit card balances low, and only opening new accounts when necessary. 

It’s essential to find a balance that works for your financial situation and helps you achieve your credit goals. If you are unsure, consider consulting with a financial advisor or credit counsellor for personalized guidance.

Frequently Asked Questions:

What is the alternative when your credit card issuer turns down your request to raise your credit limit?

If your current card issuer is not willing to raise your credit limit, you may consider applying for a new credit card with a higher limit

How does responsible usage help improve your credit score?

Using credit card in a responsible fashion can show to the issuer that you are a low-risk customer, thus making it more likely to approve a credit limit increase.

When can one expect to see an automatic raise in credit limit?

If you make on-time payments regularly and also manage your credit responsibly, you may get an increase without asking for it.

What is the importance of credit utilisation ratio?

This is the ratio of your credit card balances to your credit limits. It is vital to keep this ratio lower (i.e., below 30 per cent) to maintain a good credit score.

What is the significance of payment history in maintaining good credit score?

Making credit card payments on time is one of the key factors which influence the credit score. So, when a credit card holder can manage a number of payments in a responsible way, it is seen positively on his/her credit history.

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Published: 17 Mar 2024, 10:48 AM IST