After my previous post titled “18 Credit Cards And Not A Single Late Payment: A Guide To Efficient Credit Card Management #1“, I got a number of comments to the effect that it will hurt my credit score badly. Incidently, I last checked my credit score just a few days ago on November, 01 2006 [remember the post on "the smiling guy-sucker" on the myFICO website? :)]. You can see the score below in the post.
Before you interpret my score, here are a few points to consider:
- Though I manage 18 credit cards at present, I own 9 of them. My wife has the other 9. But our agreement is that she takes care of our stomachs while I take care of our money, so I get to manage all of them.- All 9 of my credit cards were accounted for on myFICO website including two that I got around Sept 01, 2006, so I am assuming this is the lastest updated score.-Since I got two new cards in Sept, the “hard” credit inquiries should have hurt my score a bit at the time. (Update: from what I learned eventually, this is not true. Read here about why this is not true.)
- You should understand that there is bit of a lag involved in the credit score reporting stuff. If you have a hard credit inquiry today, it doesn’t mean an instant reduction in score; it will take about a month to appear.General knowledge question:
What is a “hard” credit inquiry?
These are inquiries when someone pulls your credit report for a serious purpose like opening new credit card, bank accounts, mortgage, auto loans, etc. Such inquiries appear when you initiate a transaction. All hard inquiries adversly affect your credit score. Other companies also access your credit report to send you those trashy offers, but when they initiate an inquiry, it is termed as a “soft” inquiry and this one doesn’t ding your credit score.OK show-me-the-damn-score-already time. Here is a snapshot of my Transunion credit score on myFICO:
So obviously, my 9 credit cards were not enough to punch a big hole in my FICO score. May be it could be higher, but 771 is more than enough. So right now I can certainly say that if you have 9 credit cards or less you should be pretty OK on the credit score scenario (assuming you are never late). If you want to extrapolate this result to more than 9 cards, do it at your own risk (however, personally, I would think that it won’t matter much to your credit score if you have more than 9 cards). If I get one more card in future, I will post an update on what happens then.I think what matters most is whether you pay your bills on time and how much balance are you carrying on your cards and how close is that balance to your credit limit. Number of cards is not really an issue towards the score. However, be discreet and have only as many cards as you can manage properly.
- So should I go ahead and apply for 5 credit card offers today because having many cards won’t hurt my credit score?
NO !! If you apply for 5 cards, that will mean 5 hard credit inquiries and a significant ding to your score. Stack your cards if you want, but space your credit applications out over time. Something like 1 or 2 a year.
- I think I have a lot of credit cards, should I cancel some of them?
NO !! If you cancel your credit cards you are effectively reducing the total credit limit. That adversly affects the ratio of your credit card balances to total credit limit. This will hurt your credit score.
Does anyone know about anyone who had problems with getting credit because of too many credit cards? I would like to hear about such things so that I can document some example for (or against) this article.
P.S: I will post the “A Guide to Efficient Credit Card Management #2″ in a few days…may be tomorrow? let’s see.. I know there are a lot of eyes waiting for that one to come out 
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Once again you have written an excellent post…very informative. Well done.
Jon
P.S. I am anxious for you to post the solution to the question asked the other day ($7200 invested into a 4 and 5%…). It has been buging me that I can’t figure out the answer the “proper” way.
Actually, I don’t think there is a direct relationship between the number of cards you have and your FICO score. As long as you manage your cards responsibly, it won’t too much difference whether you have 2 cards or 10 cards. Hard inquires, they come and gone rather quickly (about a year?). Late payment is damaging as it can stay for several years.
jon: i will post it tomorrow.
sun: that is exactly my point.:) may be I didn’t get it across very well there.:)
Another majot factor for CCs and credit scores it your utilization. If you overall, and CC specific utilization is low, they your credit score will not suffer very much.
Yes Martin, I agree with you.
thanks for the info! i have probably over 10 credit cards, however, i only use 2 regularly and 2 at specific stores.
which credit card do you think gives the best reward?
I currently have a significant balance on a Chase card, that has no interest for 18 months.
The money I ow the credit card is currently in the Emigrant account earning interest. “FREE MONEY”" Yoo Hoo!
Very cool to see that others are blogging about this as well. This is the same kind of advice that I give on my site.
Also I’m glad to see that having 9 cards obviously isn’t making much of a ding in your FICO score. I had recommended 4-5 cards as a happy medium based on some things that I had read.
I’ve read also that the average consumer has around 4 cards. I’ve read that you should periodically use all cards that you own. If you own 4 cards, use each card at least a few times per year. You have 9 cards and a highly respectable score of 771. However, it is not accurate to say that I can have 9 cards and achieve a similar score, even if I pay them in full each month and am never late. You’ve probably had at least a few of these cards for years. Credit cards are only 1 portion of your score. I won’t be able to achieve a score of 800+ if I do not have a mortgage, or a car lease. Credit cards aren’t enough. I’ve read also (and am learning from first hand experience) that charge cards (such as amex gold) can hurt your score. Charge cards that have no pre-set spending limit do not report limits to the credit bureaus so the highest amount you’ve spent can be represented as your limit. I’ve read reviews from other charge card users who have reported similar dings to their scores. I’ve decided to cancel my gold card. Perhaps in time I’ll get back the 40 points I’ve lost in average from my credit scores since opening it last year.
Lindsay: I agree that it’s not accurate to extrapolate my situation to other people’s situation about number of cards and score. I will try and change the language a bit in the post.
However, here are a few facts about my credit. The oldest card I have is just 5 years old. My credit history before that was zero..zilch. The average age of all my credit cards is about 2.5~3 years. I had a motorcycle loan in the past 5 years..but I don’t have mortgage. Obviously, the score must be taking all this into account. I think I sort of extrapolated it to others because I didn’t think 5 years of credit history is *long* enough to earn merit towards my score. More, than that, I think the point I wanted to make was that general statements like “having more than 4 credit cards will result in a poor credit score” are simply not true.
Thanks for mentioning that thing about the charge cards. I have read it earlier somewhere, but never mentioned it in the post. That also reminds me to check if one of my rarely used Amex cards is a charge card..I long suspected it is, but never really made sure.
golbguru: The amex cards that are charge cards are the: green, gold, platinum, centurion, one savings. As far as I know, all the rest are credit cards. I guess I assumed with having so many cards you’ve had some for more than 5 years. I’ve heard any card that isn’t 8 years old or more, isn’t ‘old’. Means I’ve got 4 years to go before my oldest is ‘old’. If I’d known 10 years ago what I know how, I wouldn’t have closed some of them. doh. Do you know your other scores? I was surprised to see that before I applied for two more cards, I had a 30 point difference between the different scores. The next time you check your scores, try truecredit.com . They will list reasons from each bureau why your score is what it is. Ie for me: no mortgage, not enough revolving credit, not open long enough. more closed cards than open cards. multiple inquiries within last 18 months. More helpful than just reports and scores. Of course, I just closed my gold card because of my dropping scores, and opened an amex blue. so that will be another closed account. another account opened within 18 months,and another inquiry. such a double edged sword!
GolbGuru,
regarding “Number of cards [18] is not really an issue towards the score. However, be discreet and have only as many cards as you can manage properly.”
Good to see you back-track away later from this comment about 18 cards, because there IS a “reasonable” and “unreasonable” number of cards. Plus, it flies in the face of common sense. Also, in the hands of *some individuals*, a large number of cards can be very risky, even the road to ruin. The right limit should be determined in the context of an individual’s (or couple’s) spending patterns and their “impulse control.” One size does not fit all.
I got my credit reports in early 2006, through one of the sites where you get separate reports from the top three credit agencies. Although I got a score that averaged in the low 800’s, the spread was +- 10 or 15 points. In a summary it recommended, “try reducing your total cards to 4 or 5, or less.” My card burden: 2 major credit cards active, a few major department store revolving credit cards, I use two store cards semi-regularly and rarely use two more. This many cards was on the edge of impacting my credit score. So if four active cards is on the edge, I cannot see how having 9 open cards for one person is going to yield the same score, if all other conditions are equal. If I had 9 cards, I am certain myscore would have been lower; the advice of the credit site indicates this.
I’m not a regular reader of your blog site, so I don’t know the general context… but my impression is that 18 cards between two people is excessive! Why?
If/when you go to apply for a mortgage, and later for a home equity loan for that retiremnet cottage, you will find that 18 cards will reduce what you can qualify for (regardless of whether you pay off all the balances promptly). The bank considers your income, then subtracts what you pay monthly, then fudges in a factor for what you’d have to pay out if you started charging up ALL those cards to the max. Why? New home owners go out and buy stuff. *Lots* of stuff. Those cards will reduce the size of loan you will get, because those cards are potential liabilities. At least, that was how the process worked when I got a mortgage over a decade ago and a HE-LoC a while ago.
On all your cards, what is your total annual fee burden? Or do you just go for the no-fee offers? Of those four cards that you keep locked up in the safe, are you paying annual maintenance fees for that? That would be wasted money.
If you are paying your credit cards off each month or on a 0% card, good. (But you will still be in for a nasty surprise when you apply for a home loan.) Banks are trying harder all the time to collect fees from “deadbeats” like us that pay off our balance monthly and don’t earn the bank interest. I predict the demise of “no fee” credit real soon now. Then how would those 9 cards look?
Hi, I am 20 years old looking to lease a nice
car, i have 1 credit card and 1 store card my credit score last time i checked was 698. I wanted to know if it is good enough to lease a car.
Thank you
I recently closed off my ‘oldest’ credit card (BoA), that was 2 years old. I found it ridiculous to pay $30 annual fee for 6 more years (i had already paid twice). So now my oldest active card is just 8 months old (or young
).
The good news is i got another card from BoA, which means it wont dent my FICO score, and i got a better credit limit too lowering my credit utilization.
I hv a small question on this.
What @ credit line increase inquiries ? I assume they won’t hurt ur score. Is that correct ?
Invincible: In future, never apply for a credit card with annual fees (unless it’s a miles card and you fly every month).
When you say the new card from BoA “won’t dent my FICO score” …you mean that the credit inquiry won’t be registered right? Just so that we are on the same page, this new card is not going to compensate for the drop that may have been caused by closing your old card.
Better credit utilization is good.
@ Credit line increase inquiries: yeah technically, they should not affect your credit score (read this) because these are inquiries by existing lenders. Most cards (like Citi, Amex, BoA, and former MBNA)..usually have automatic credit line increases …or have procedures in place which do not require credit review for increasing credit lines. So if you are talking about one of them, check their websites and see if you qualify for automatic increases.
Let me know if you need help.
By ‘wont dent my FICO score’ i meant, i already have (or rather had) one Bank of America credit card. So another card by the same lender would mean another credit inquiry (yes they did send an inquiry even after me being their loyal customer for 2 years paying $60 for loyalty) by the same lender. So technically it shudnt ding my credit score.
Please let me know if i’ve got the premises right.
Now @ credit line increase:
I made a blunder in January and got one HSBC (orchard bank) cred card. They gave me a measly $500 cred limit (they suck). Now i hv an option of increasing my cred limit, but i dont want to take any chances if it hurts my cred score.
Why i want credit line increase is b’cos this card is with 0% APR on balance transfers with no transaction fees (Now u know how they tricked me into getting one in the first place).
What do you say?
Invincible: Go ahead and apply for the line of credit. I see two possibilities:
-Since your account is open only for 3 months, they might straight away reject your request. Most banks will require your account to be open for at least 6 months before they consider you for a credit line increase.
-The will check your credit and the additional inquiry will ding the score. But even in this case, it’s not going to cause a lot of harm (may be 5~10 points…if you don’t already have a lot of inquiries on file in the last year). So unless you are looking to apply for major credit pretty soon, you are OK with asking them.
Man, u r scaring me !!
I can not afford to lose credit points.
In Last 8 months there hv been following inquiries:
1. Apartment leasing centre - Aug 06
2. PNC cred card - Sep 06
3. HSBC cred card - Jan 07
4. UGI - Cooking & heating gas (why the hell they need it i don’t know) - Aug 06
5. Bank of America - the latest one - Apr 07 (no loyalty honored).
On top of this i want to apply for Amex true blue card (cos they again are giving 0% APR on balance transfers with no transaction fee).
Now this itself, on it’s own looks like a bad idea considering i had 2 hard inquiries recently (jan & april).
BTW, does the BoA inquiry hurt my score?
My credit score when i last checked (Mar 07) was 705.
Hi
Firstly thanks for the information on this topic.
I am new to USA from another country and working on building my credit score. I have not checked it yet as I dont need to as of now.
Recently I took an auto loan at very high rate (15%) as I did not have any history before that. In the last 3/4 months I have paid off 90% of the amount. My question is will it harm my credit score if i pre-close the loan. My thinking is as the lender did not get as much interest out of my loan transaction, it might impact my score overall. Other option i am considering to continue this loan for a while paying small amounts. The reason I rushed my payments to this loan is because of high interest rate.
Please suggest.
Thanks in Advance
SK: Sorry for the delayed reply. I have just one answer for you. Just pay off the loan. Early paying doesn’t take points off from your credit score. (Sometimes there are early paying penalties imposed by the lender…so check on that…usually auto loans shouldn’t have those). Hope that helps. Feel free to ask any other question if you have any.
I had 3 chase cards. chase increased my credit limit on two of my cards to 9,000 and 11,000. I had a balance on each card of 4,000 and about 6,000. Then I got the first “letter”. Chase decreased me credit limit on those two cards and increased my APR!! Then the second letter: Chase closed my third card DUE TO TOO MANY REVOLVING ACCOUNTS!! Now I have that scar on my credit report. Let me say that I had about 10 cards between store cards and credit cards. Most of my cards are 4 to 6 years old, and NEVER, NEVER I have made a late payment. So practically Chase increased my credit, (i use my card and probably added 2,000) then they decreased it and close one of my accounts. Thank you very much!! Has this happened to anyone else?
Thanks for sharing such great post, i think don’t use all of them, card which can give you good reward use that on regular basis.
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