Is Your Credit Score Affected by the Number of Cards You Have?

Your credit score is a three-digit number that lenders and some other businesses use to assess your creditworthiness. Generally speaking, the higher your credit score, the less of a credit risk they will perceive you to be. Having a relatively high credit score can not only help you secure a loan for a big-ticket item, such as a car or a home, but also get you a more favorable interest rate than if you had a lower score.

How Credit Scores Are Weighted

There are two major types of credit scores today: FICO scores and VantageScores, and each of those comes in a variety of versions.

FICO scores, created by Fair Isaac Corporation, are the most widely used. Based on the information in your credit reports, the FICO scoring model looks at five factors, which it weights as follows:

• Payment history: 35%
• Amounts owed: 30%
• Length of credit history: 15%
• New credit 10%
• Credit mix: 10%

VantageScores are a more recent competitor, jointly created by the three major credit bureaus, Equifax, Experian, and TransUnion. The most widely used VantageScore, VantageScore 3.0, uses these weightings:

• Payment history: 40%
• Credit utilization: 20%
• Credit balances: 11%
• Recent credit: 5%
• Available credit: 3%

How the Number of Credit Cards You Have Can Influence Your Score

For both FICO and VantageScores, the number of credit cards you have can have either positive or negative effects on your score, depending on how you use them.

What FICO refers to as "amounts owed" and VantageScore calls "credit utilization" is a measure of the amount of credit you're using at any given time relative to the total amount of credit you have available to you. As FICO explains, "Having credit accounts and owing money on them does not necessarily mean you are a high-risk borrower with a low FICO Score. However, if you are using a lot of your available credit, this may indicate that you are overextended—and banks can interpret this to mean that you are at a higher risk of defaulting."

In other words, having a bunch of credit cards is fine, as long as you don't max them out. In fact, both the FICO and VantageScore scoring systems favor consumers who keep their credit utilization ratio below 30%, and the lower it is, the better.

For that reason, having several cards can sometimes be better than having just one. As a simplified example, suppose you have two credit cards, each with a credit limit of $5,000, for a combined credit limit of $10,000. If your balance on the two cards totals $2,500, your credit utilization ratio is 25%. However, if you only had one card with a $5,000 credit limit and owed $2,500 on it, your credit utilization ratio would be 50%.

A second way that the number of credit cards might affect your credit score is in FICO's "credit mix" category. That category rewards consumers who have a variety of different credit accounts, such as a mortgage, a car loan, and a credit card. In this case, having at least one credit card in your name can be of benefit. However, it's worth bearing in mind that credit mix only contributes to 10% of your FICO score, making it a relatively minor factor.

The Bottom Line

How many credit cards you have can affect your credit score, but what's more important is how you use those cards. In particular, the companies that create credit scores want to see that you pay your bills on time and that you don't use up too much of your available credit.