Credit and Credit Scores are tricky things. In order to increase your credit we need to take out loans and pay them back on time. But in order to get loans we need to increase our credit.
Seems like a Catch-22, and that’s why a lot of people come to me for help. Lucky for everyone involved, I have some answers.
The most effective way to keep a credit score going up, as I recently wrote about, is to pay down your credit card balances. But if you only have one credit card, with a low $300 limit, then you still don’t look like a competitive borrower to lenders.
On the other hand, if you have 10 credit cards, lenders might see too many open accounts to want to add their name to your list.
Data for late 2021 shows that Americans had over 500 Million Credit card accounts open, representing about 5% of our total debt. For perspective, there are less than 200 Million mortgage accounts, but that takes up 70% of our debt.
That means Americans are keeping a lot of credit card accounts open, but keeping their balances low. Doing this maximizes credit score impact, keeping scores high, and debt low.
How Many Cards for You
The bottom line is that credit scores are calculated using a complex formula with a few simple rules. We’re concerned with the “Credit Usage” rule, here. That basically says that the less of your available credit card balance that you actually use, the better for your score. That means that if you can handle owning multiple cards, and not using them, then your score will go up.
For many people, though, that proves too difficult to manage. We have a tendency to use funds when they’re available. So the right answer is to use as many cards as you can responsibly carry–and keep your credit usage below 10%.