As you work to build up your credit score, you may be wondering if you have enough credit cards or perhaps too many. While the number of credit cards is important, what’s essential is understanding credit utilization. In other words, how much of your available credit is in use.
You have to use credit to have a strong credit score, but overusing it could hurt you, too. Confused? Here’s a closer look at how to determine how many credit cards you should have.
What Is Credit Utilization?
Often expressed as a ratio, credit utilization is the amount of revolving credit you’re using right now compared to the amount of credit available to you. It’s the total amount of credit you owe divided by the credit limit.
For example, if you have three credit cards and a credit limit of $10,000, and you owe $4,000 in credit card balances, your credit utilization rate is 40%. You’re using 40% of the credit available to you.
What is revolving credit, though? Revolving credit is any type of credit where there’s an established credit line, and you can borrow from and pay back over time. It’s generally credit cards or other lines of credit you may have that you can borrow against more than once.
How Do Credit Utilization Ratios Impact Your Credit Score?
Lenders look at your credit utilization carefully when determining whether they should lend to you. Lenders value this figure because it shows how much debt you typically carry. With a high ratio, you may be struggling to pay down your debt.
If you carry a high credit card balance, which is evident by a high ratio, that can hurt your credit score. Keeping a low ratio allows lenders to see you’re using credit wisely and not at risk of defaulting.
A good credit utilization rate is under 30%. That means that you owe less than 30% of your available credit limit, according to Experian. That means that of that $10,000 credit limit you have across all of your credit cards, aim to keep your credit balance under $3,000.
Does Opening New Credit Cards Help?
It’s always best to work to pay down your credit balances to keep the individual card ratios low. However, one way to lower these figures is to increase the available credit you have.
For example, if you opened another credit card and your available credit limit grew to $15,000 and maintained that $4,000 balance, your credit utilization ratio drops to just over 26%.
The same applies to requesting a credit limit increase from your existing creditors. This could potentially reduce your utilization rate.
However, if you open new accounts to increase the amount of credit limit you have and then use those cards, you’ll increase your credit ratio. It’s best to keep your debt balance as close to zero as possible.
How Many Credit Cards Do People Typically Have?
There’s no set number of what you should do, especially since every credit card offer will have a different credit limit based on factors like your income and credit score.
Data from Experian shows that the average American has 3.84 credit card accounts as of the third quarter of 2020.
What If You Close Unused Credit Cards?
Closing an unused credit card could hurt you in multiple ways. First, it reduces your credit limit, which may increase your credit utilization rate.
Second, even when not used, older credit cards can establish your credit history. An older credit history boosts your credit score itself.
How to Find the Right Credit Card for Extending Your Credit Utilization Rate
If you want to increase your available credit limit, consider a few things when looking for a new credit card.
Look at the interest rate on the credit card offer. The lower the rate, the more affordable the credit card. Check out Belco’s low introductory rate for 12 months!
Cash Advance and Purchase Rates
Compare the interest rate on purchases and cash advances. Belco offers the same rate for cash advances and purchases, making it more affordable overall.
Consider Balance Transfers
For those that carry a significant amount of debt, it may be helpful to choose a credit card that allows for low-interest balance transfers that don’t have high transfer charges. This can help with debt consolidation.
One of the many perks of Belco’s credit card is no balance transfer fee!
More Borrowing Power
As you work to increase your credit utilization, you may want to choose a lender that offers sizable credit limits to qualified borrowers. Belco offers credit limits of up to $20,000, which provides you with more flexibility in managing your credit needs.
So, How Many Credit Cards Should You Have & Is Now the Right Time for Another?
Whether you are beginning your credit journey or you’re a veteran credit card holder, it’s important to know all of your options and how they meet your current needs. Finding the right credit card is a big step no matter how many credit cards you may or may not have!
To help you, consider taking a closer look at a few strategies to help you choose the best card for your needs.