Personal Finance and Investing

Dear Credit Karma,
How come the more credit cards open you have, the better it is for your credit score; but if you try to open a credit card and get a lot of hard inquiries, it lowers your credit score? This is confusing and contradictory! What to do?

I don’t blame you for the confusion! The impact on your credit score when you open new credit cards or juggle multiple cards can vary—it can lower you score, raise your score, and it is hard to predict what effect it will have on your credit report. But here is what’s happening:

1. Positive impact – Having multiple credit cards open is good for your credit score because it affects some of the important components of your credit score: your open credit card utilization (more credit cards means more available credit), average credit history, and credit mix (total amount and variety of credit lines). A variety of credit cards shows your creditworthiness– that lenders are willing to lend to you, and you know how to manage several credit cards. The key is having the right amount of credit cards—not too many, not too few. With just the right amount of credit cards, you aren’t racking up too much debt but you also have significant credit that you use responsibly. Based on Credit Karma’s members, consumers with a credit score of 800+ average about 7 credit cards, and consumers with a credit score of 700-799 average 6 credit cards.
2. Negative impact – Every time you apply for a credit card, the issuer will conduct a hard inquiry, and each hard inquiry dings your credit score a few points. Multiple hard inquiries will add up in damage to your credit score. Therefore, applying for one new credit card isn’t too bad; but applying for many credit cards will, like you mentioned, lower your credit score. Plus, an additional credit card means more credit available that can become a new source of debt if you aren’t using your new credit responsibly.

So what do you do? First off, don’t open a new credit card just to increase your credit score—this could backfire and lower your credit score if you mismanage your new card and accrue debt. If you are looking to get a new credit card and you are prepared to handle it responsibly, don’t send out credit card applications to every issuer under the sun. Choose credit cards that other consumers with a similar credit score as you were approved for to better your chances of approval; check out Credit Karma’s credit card recommendations to see which credit cards are good choices for your credit score range.

The bottom line: YES, applying for many credit cards will ding your score if you do too many haphazardly. YES, more credit cards CAN better your score, but that depends on your unique credit profile and how well you manage your credit. As with all things financial, treat your credit cards well and your credit score will thank you for it.

<

Similar Posts:

• What’s with Hard and Soft Credit Inquiries?
• Celebrate Your Financial Independence! Your Credit Score Will Get You There
• Multiple Applications Used To Cheat Credit Reporting System
• Top 10 Reasons Why Your Credit Score Isn’t As High As It Could Be
• Demystifying Credit Inquiries and Its Effects on Your Credit Standing