Many consumers, when ordering their free annual credit report for the first time, are surprised by the long list of credit accounts that they have. For example, they might have long ago forgotten about the credit card they used to get a great discount on new set of tires, or from Home Depot when they refurbished their den. Even the first credit card that they might have opened ages ago, and haven’t used at all in years, could actually still be there.
This begs the question; is it possible to have too many credit cards and can having too many hurt your credit score?
Thankfully, those old accounts likely aren’t damaging your credit score at all and, in some cases, might even be helping you (as long as you aren’t carrying debt on them, of course). The reason is simple; your credit score is primarily based on how you manage your credit, not the amount of credit accounts you have.
That being said, the very best and easiest way to see if your old credit card accounts are impacting your credit score is to get your credit reports from the 3 biggest credit reporting agencies (TransUnion, Experian and Equifax) and check. As we’ve said many times on this blog before, every American consumer is, by law, able to receive one free credit report from the big 3 agencies once a year.
Sometimes older is better when it comes to credit cards and credit scores
When it comes to how credit reporting agencies score your credit, a number of factors come into play, including the age of your oldest credit account and the average age of your total accounts. How recently you opened a new credit account is also a factor. The fact is however that, in this situation, the older a credit card is, the better. That’s because that older credit card gives you a longer established credit history and can help you even if you aren’t actually using it.
Sometimes a credit card will be deleted from your credit report after it’s been closed however, or after a certain time of inactivity. For that reason it’s a good idea to, once in a while, use those older credit cards to keep them active and open. If you don’t have a lot of older credit accounts, this is even more important because losing one would cut down on the “age” of your credit history quite a bit.
Don’t forget your credit utilization
One other big factor when it comes to credit cards is your credit utilization ratio. That means, in simple terms, the amount of credit you are using as opposed to the amount of credit that you have. For example, if you have $10,000 in available credit and have $1000 in debt spread out on all of your credit cards, your credit utilization ratio is 10%. That’s a good ratio that most finance experts would tell you not to exceed unless absolutely necessary.
This is where having too many credit cards can be dangerous because, if you aren’t able to control your spending, you might end up with a lot of credit card debt, and a credit utilization ratio that’s very poor and could affect your ability to get more credit in the future.
In the end, the most important thing to keep in mind, no matter how many credit cards you actually have, is to keep your balance low or at zero by paying off your credit card bill every month. Using your credit cards just fine, just as long as you pay them off at the end of each month.