How many credit cards should I open for a good credit score?

Did you know that according to the United States census bureau, the number of credit card holders was estimated to be 160 million, up 4 million from 2009. However, the number of credit cards in circulation was estimated to be 1,167 billion, down 78 billion when compared to 2009. This did not affect spending, which was estimated to increase by 434 billion in 2012 from 2009.

One credit card is sufficient in building your credit history. You do not however, have to limit yourself to just one credit card, but do keep in mind that a wallet full of credit cards will make you a risky candidate to financial institutions.

Whether you decide to use one or more credit cards to build a good credit history, there are two other factors you should consider that will have huge impacts on your credit score - your debt to limit ratio and the age of your account(s).

  1. Your debt to limit ratio
    While paying your bills in full and on-time each month will help you avoid paying interest, it may not help you achieve a higher credit score. A person making the minimum payments on-time each month can have a higher credit score than you if he or she maintains a low debt to credit card limit ratio. Your credit score takes into account how much money you put on your credit card each billing cycle (your balance) and compares that to your credit card limit. The higher your balance, the risker you are even if you pay off the balance on-time each month. Although FICO has not endorsed a best debt to limit, many experts recommend keeping your debt to limit ratio at or below 0.45 (45%). Whatever the magic number may be, it is important to note that the lower the number the better the impact on your credit score. Those with credit scores in the high 700's and 800's have on average a debt to limit ratio of about 0.07 (7%).

  2. The age of your accounts
    Your credit score takes into account the age of your oldest account and the average age of all your accounts. Older accounts have more of an impact on your credit score than newer accounts. Accounts that have been open for a while paint a better picture of your financial stability. Opening new accounts frequently can reduce the average age of your accounts and length of your credit history. Keeping older accounts in good standing open as long as possible will help improve your credit score.

In summary, to obtain a good credit score, limit the number of credit cards you own, pay your bills on time, keep your debt to credit card limit ratio low, keep older accounts in good standing open as long as you can and do not open new accounts frequently.

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