Why Multiple Credit Cards Hurt Your Credit Scores?

In an economy, where investments and purchases are done using a credit card from a bank, the worthiness of the credit card holder is usually verified by the lender agencies. There is a simple process of calculating the numerical representation, which includes having a credit score of the credit cardholder. In most countries, the credit bureaus often come up with credit scoring. This score is based on several factors that make up the credit history of the credit cardholder. Moreover, factors such as credit inquiries, repayment history, credit utilization, and the length of credit card history, play an important role in calculating the credit score.

There exists no such rule or regulation whereby it can be said that having multiple cards will lower the credit score of the credit cardholder. Nevertheless, the entire scenario depends on the responsible and strategic management of the credit card by the credit cardholder. A person can surely have 2 to 3 credit cards but should follow the right method of maintaining them.

The credit score is often calculated keeping in consideration the amounts owed and also the pattern of payments as well as the number of credit applications made. It has often been seen that people fail to maintain an impeccable record for mismanagement of so many factors when they have multiple credit cards. Hence the rule is to be aware and to be careful as anything short of it will negatively affect the credit score of a multiple credit cardholder. The factors that need to be kept in consideration in such a situation are:-

Repayment History: The payment history of the credit cards is a very important variable while calculating the credit score. Late payments and penalties are not ideal behavior. A consistent anomaly in this periphery might be reported to the credit bureau and will eventually lower the credit score. The repayment history takes up a good 35% value in the calculation of credit score. Hence, one has to make timely payments for multiple cards and be mindful of the due dates.

Multiple applications & inquiries: The credit score is lowered by multiple applications and inquiries. At times, this depicts the high-risk potential of the credit cardholder. Hence applying for multiple cards will consequently result in multiple inquiries by banks & agencies, lowering the credit score.

Length of credit card history: The average length of credit history is taken into account while calculating the credit score. Hence, new multiple credit cards will result in a lowering of the credit score due to this factor. It carries a 15% value in the calculation of the score.

Credit utilization: Multiple credit cards will lead to more credit limits which need to be utilized in the right proportions. Ideally, the outstanding debts should not go beyond 30% of the credit limit, or else it affects the credit score. Also, to keep in check, the tendency of expenditure and maintaining a balance in such activities.

Types of Credit: Ideally, multiple credit cards should be taken for varied purposes. If several cards are taken for the same purpose, it triggers suspicion in the credit bureau and the credit card holder is considered as a high-risk borrower which will affect the credit score.

The Bottom Line

Remember, the aim of your credit score is to determine how likely you are to pay back the borrowed money. So if you use them carefully, having multiple credit cards won’t affect your credit score. Therefore if you do it properly, with very few disadvantages, you will be able to take advantage of all the advantages that your cards have to offer.