“How many credit cards should I have?”
This is actually a pretty common question that we hear, so let’s explore it a bit…
FICO recommends that you have 3-5 revolving lines of credit (credit cards), but just as important are:
- A good diversification of credit (revolving, mortgage, cars, etc…)
- A seasoned history of responsible use of credit.
When it comes to mortgage financing, most lenders want to see that you have 4-6 open and active tradelines. These tradelines can be a mix credit cards, department store cards, car loans, or an existing mortgage loan. These lines not only need to be active, but they need to be seasoned – meaning that they have to have some history – usually 12 months or more.
Having those 4-6 open and active tradelines shows lenders, creditors, and the credit bureaus that people have trusted you enough in the past to extend credit to you, and that you have used it responsibly. If you have more tradelines, that’s completely fine. In fact, having more tradelines isn’t negative, as long as you are using them responsibly.
Ok, we’ve used the word “responsibly” a few times, so let’s discuss what that means.
How you use your credit is extremely important, so here are some guidelines:
- You must make timely payments (even one 30-day late payment can make your credit scores plummet).
- You shouldn’t “max out” a card. Keep your balances at 60-70% of the limit or lower.
- Use your credit regularly. Make frequent charges on the cards and then, if you can avoid a running balance, pay them off in full every month. You’ll avoid finance charges and a history of doing this consistently will get you a lot of “love” from the credit bureaus.
- Don’t close cards that you’ve had for a while. That active credit card that you’ve had for years is GREAT for your credit history. Use it periodically and keep building that positive credit history.
So going back to our original question, “How many credit cards should I have?”
To summarize, you want to have 3-5 credit cards as well as installment credit lines such as cars and/or a mortgage. This will give you at least 4-6 total active accounts. As for the credit card accounts, use them frequently, don’t let the balances get too high, make the payments on time, pay them down to a zero balance whenever you can, and keep them open and active. These few steps can help you to achieve top tier credit!
If you have questions or need help fixing negative credit items, just give us a call and we’d be happy to provide you with any information you need.