You may have heard that getting a credit card is one of the easiest ways to build good credit. It’s true: There are credit cards for people with bad credit or no credit, and if you can get one, you can use it to build up the most important parts of your credit history, payment history and debt use. If you make your payments on time and keep your balance on that credit card low, you can start building a good credit score.
So if one credit card can help you do that, would two credit cards help you accomplish that faster? We get that question a lot, and the answer isn’t clear-cut. Here’s why.
When Multiple Cards Can Help
As we mentioned before, your level of debt is one of the most important aspects of your credit score. As far as credit cards go, you need to focus on your credit card balance(s) and your overall credit card limit. You want to use as little of that limit as possible: The lower your overall credit card balance is relative to your credit card limit, the lower your credit utilization rate will be. Companies that make credit scores have long recommended people keep their credit utilization rate lower than 30% or, ideally, lower than 10%. So if you have a combined $1,000 credit limit, you’ll want to charge no more than $300 (or, ideally, $100) to your cards before paying the bill.
“Opening multiple cards may be necessary for score building if the credit limit on a single card is too low to handle your charging needs,” Barry Paperno, who has more than two decades of experience working in the credit scoring industry, said in an email.
Say you want to charge $200 a month, but your only credit card has a $500 limit. Unless you decrease the amount you spend on that credit card, one of the only other ways to decrease your credit utilization rate is to get a higher overall credit limit. Opening another credit card could accomplish that — as long as you continue to only spend $200 on your credit cards each month and pay off the balances.
Getting another credit card isn’t the only solution to that problem.
“You can keep a low-balance reporting on a single card without curtailing your charging by making multiple payments during the month,” Paperno said.
When Multiple Cards Can Hurt
If you’re considering applying for multiple credit cards, keep in mind that each credit card application will add a hard inquiry to your credit report, which can hurt your credit score. They don’t hurt your score for very long — about 6 months to a year, and they age off your credit report after 2 years — but you’ll see the negative effects in the short term, so your strategy could backfire.
“If someone were to suddenly apply for several new credit cards, there would likely be a negative impact to their credit scores,” Kristine Snyder, a spokeswoman for the credit bureau Experian, said in an email. “Because there is no payment history associated with the new accounts, credit scoring systems don’t know how to interpret them. That unknown often results in a temporary decline in scores, not an instant improvement.”
Then there’s the challenge of managing multiple cards. If you’re trying to show you can make payments on time and use credit responsibly, it’s probably easier to focus on doing that with just one account.
“For most consumers, taking it slow with a single card during the first credit-building year can lead to a good score as quickly as with multiple cards, and be easier to manage,” Paperno said.
It generally takes 6 months of using credit to have enough of a credit history to produce a credit score. You can track how your credit-building efforts are going by regularly reviewing your credit scores. You can do that for free on Credit.com, where you can get a free credit score, updated every 14 days.
More on Credit Reports & Credit Scores:
- The Credit.com Credit Reports Learning Center
- What’s a Good Credit Score?
- How to Get Your Free Annual Credit Report
Image: Petar Chernaev