If you’re monitoring your credit because you believe your credit score could use some work, you may think more credit cards are the last thing you need. Or, you may hope that adding new cards will boost your score.
As with many aspects of life, moderation and education are the keys to positive credit card use, especially when you’re managing your credit score. How many cards you have is less important than how wisely you use the ones you do have. Using one card injudiciously can be just as damaging as having 25 cards that you never use.
If you want to manage your credit score, keep these thoughts in mind about how credit cards play into credit score calculations:
* Responsible use of credit over a length of time–including paying your credit card bills on time, every time—is a major factor in your credit score.
* Every time you apply for a new credit card (or any type of new credit), you’ll see a “hard inquiry” on your credit report. This means, the lender will access your full report and score. Too many hard inquiries in a short amount of time can negatively impact your score.
* New accounts don’t have the payment history of older accounts. Good payment history is a top consideration when calculating your credit score.
* Your debt-to-credit ratio—the amount of credit you’re using compared to the total amount you have available—also factors into your credit score. Consider this scenario—two people both owe $4,500 on credit cards. One person, however, has just a single credit card with a limit of $5,000. The other person’s total credit limit is $25,000 on five different cards. Who’s ratio (and probably credit score) is better? You guessed it: the person who has more unused, available credit.
It’s never a good idea to apply for a new credit card or cancel an old one solely with the intent of influencing your credit score. Before you make any move to manage your credit, you should research its possible ramifications.
Some moves, however, are pretty reliable. Avoid carrying a balance on credit cards, or, if you must carry a balance, keep it low. Watch your debt-to-credit ratio, and, most important of all, keep paying your bills on time.