Does having multiple credit cards negatively impact your credit score?

Having multiple credit cards can have positive as well as negative effects on your credit score, depending on how you manage each of your cards. Since credit score has a direct influence on your ability to avail of loans and credit cards in the future, it is important to understand how you can make the most of your credit cards and use them to improve your score. Here are some ways in which multiple credit cards can have a positive impact on your credit score.

Improved Credit Utilization

Credit Utilization Ratio (CUR) is the ratio of the utilized credit to the total credit available to you. When your CUR is consistently high, it portrays you as a credit-hungry borrower and might make loan/credit card approval difficult. This is why it is important to maintain a low CUR. With multiple credit cards, you have access to higher total available credit limit, which, when used optimally, lowers your overall credit utilization and enhances your credit score. This is also the reason why experts advise cardholders not to close their lifetime free credit cards, as the unused limit works in favour of their credit score.

Diverse Credit Mix

A diverse credit mix basically means having a mix of different types of credit, such as credit cards, loans, and mortgages. If you already have a mortgage and a car loan, adding credit cards to the mix can improve your credit diversity and potentially boost your credit score. Adding multiple credit cards to other types of credit represents that you can handle different forms of credit responsibly, which improves your creditworthiness. Hence, adding multiple credit cards to your credit mix can be beneficial for your credit score.

Improved & Longer Payment History

A strong payment history is one of the most crucial factors affecting your credit score. Using multiple credit cards responsibly and making on-time payments shows the bureaus that you are a responsible borrower, positively affecting your credit score. Besides timely payments, the length of your credit history also plays an important role in determining your credit score. Having multiple credit cards with longer account histories adds to the overall age of your credit, which tends to have a positive impact on your credit score.

Backup in case of Emergency

Credit cards can serve as a backup source of funds during emergencies. However, when you have only one credit card, you might have to exhaust the entire credit limit when a financial emergency strikes which, if not paid off on time, negatively affects your credit score. When you have multiple credit cards, you can split up the cost and avoid hurting your credit score. Credit card issuers also provide pre-approved loans on credit cards to consumers. When you have multiple cards, you can compare the loan offers on each of your cards and choose the one with a favourable interest rate.

Enhanced Credit Card Benefits

Different credit cards offer different benefits, such as cashback, rewards, or discounts on specific purchases. By using multiple credit cards wisely and taking advantage of these benefits, you can save a substantial amount on your purchases. For instance, if you are loyal to a specific brand, using a co-branded card that rewards you with higher benefits on that brand can help you responsibly manage your savings. Utilizing multiple credit cards smartly not only allows you to save money on your expenses but also helps you effectively manage your finances, thus having a positive impact of your creditworthiness.

Tips to Manage Multiple Credit Cards

While there are advantages of owning multiple credit cards, there are also several associated risks that can lead to financial difficulties and negatively impact your credit score. Here are some key factors to consider while handling multiple credit cards:

- Avoid applying for too many credit cards at once as having multiple hard inquiries can negatively impact your credit score

Keep track of all the credit card payments to avoid missing or late payments as it can severely damage your credit score

Try not to overspend when you can’t afford to pay back as it can lead to high credit card balances
Avoid maxing out your credit cards and try to keep your CUR as low as possible to have a positive impact on your credit score
Try to keep your old or unused card accounts open to increase the length of your credit history

In general, having multiple credit cards can have both positive and negative effects on your credit score depending on how you are managing them. To avoid hurting your credit score, you should responsibly manage your credit cards and follow the best practices. Keeping a balance between managing your credit and maintaining a lifestyle that aligns with your needs is important if you have multiple credit cards. Make an informed decision and try to manage your cards in a way that positively impacts your credit score.