Having several credit cards, in and of itself, does not hurt your credit score. What matters are the specifics of those cards and how you have used them. (See also The 5 Biggest Factors That Affect Your Credit.)
Your credit score is roughly based on five factors, some of which are weighted more heavily than others:
- mix of credit types in use (i.e. credit cards, loans, mortgage): 10%
- new credit: 10%
- length of credit history: 15%
- amounts owed (and amounts available): 30%
- payment history: 35%
As you can see, 80% of your credit score is derived from whether you've made payments to your credit card companies on time, your current balance(s) and credit limit(s) and how long your credit accounts have been open. (How frequently you use credit cards in any given month doesn't matter.) If you maintain a low balance relative to your limit and you make payments on time, either because you're slowly paying down an existing balance or you're paying off your charges monthly, your credit score will remain intact. In fact, people with the best credit scores have done little more than repeat this pattern over a long period of time.
Having only one type of credit – credit cards, say – can lower your credit score. However, that’s no reason to run out and get a mortgage or an auto loan. Limit your loans to those you actually need.
When Multiple Cards Can Hurt Your Score
Having several credit cards could hurt your credit score if all of them are relatively new. Opening several accounts in a short time can make you look like a risky borrower who suddenly wants access to lots of new credit. Opening several new cards all at once would also lower your average account age, which could lower your score.
How Much Credit You Use
What's called your credit utilization ratio – the percentage of a borrower’s total available credit that is currently being used – will affect your credit score. The scoring formula treats borrowers more favorably when they use 20% or less of their available credit. If your credit card balances are high relative to your credit line, your credit score will suffer. Having several credit cards can actually help you here. If you have much more available credit than you actually need to use, your credit utilization ratio is more likely to be below 20%. (Read 6 Benefits of Increasing Your Credit Limit.)
How Late You Pay
If you have paid any of your credit card bills late by 30 days or more, your score will take a hit. Making your payments on time is one of the best ways to boost your credit score. However, one or two late payments won’t hurt your score permanently if your subsequent on-time payment history is solid.
The Whole Picture
It is difficult to measure the impact of any single factor on your credit score, cautions the Fair Isaac Corporation (FICO), the company that works with Equifax, Experian and TransUnion to provide your credit scores, because the score is based on all the information in your credit report taken as a whole. What's more, FICO points out, lenders often consider factors beyond your credit score, such as income and employment, in determining whether to extend credit.
In fact, loan approval and interest rates on loans, the reason we care about credit scores in the first place, depend more on income than other factors. Borrowers with low credit scores and high income levels are just as likely to obtain the loans they desire as borrowers with great credit scores and low incomes. But don't fall into the trap of overusing your credit cards to try and build credit. Chances are, you'll end up in more debt than you can handle with no real positive effect on your credit score.