By sifting through your credit card amount, it’s natural to wonder if you have too many. Or, if you are considering opening a new credit account, you want to make sure that your other credit card will not affect your credit. “How many credit cards are too many?” is one of those questions that does not have a one-size-fits-all answer type, but there are several ways you can evaluate if you have too many credit cards for you.
You have a great debt-to-income ratio
When lenders evaluate your loan application, they consider the loan available as an opportunity for debt. They can calculate your debt-to-income ratio as if your credit cards were at their full maximum to assess you at the highest possible level of debt. You can make a similar calculation of the DTI ratio.
If you were to max out your credit cards, what would your debt-to-income ratio look like? Would it rise above 37%? If so, you should consider closing some of your unused credit card accounts, especially recent ones with a $ 0 balance.
You have high credit use
Credit utilization (30% of your credit score) shows how much you owe. It is calculated as the total debt divided by your total credit. So, for example, if your credit card limits a total of $ 5000, and your credit card balances a total of $ 2000, then the loan utilization rate is 40%. Ideally, your credit utilization should be less than 30%, lower than 10% is even better for your credit score.
The more credit cards you have, the more use it is to use them. As your credit card balance increases, so does your credit utilization. One way to keep credit utilization is to minimize the number of credit cards you have and the balance you carry on those cards.
You have no experience with other types of loans
The credit mix is another credit factor that includes the number of credit cards.
Bonus Calculation looks at all the types of accounts you have in your credit file to determine how much experience you have with different types of credit accounts. If you have several credit cards but not other types of accounts, your credit score might be affected, but probably not many. After all, a credit combination is only 10% of your credit score.
You have a hard time managing your credit cards
Too many credit cards will affect your ability to manage your payments. You need to be able to keep track of your credit cards, including payment dates, interest rates, fees and fees you make. It’s a lot easier to manage credit cards when you only have a few, like between one and three. It gets harder as the number of credit cards exceeds five. However, it depends on your ability to manage your credit cards.
Meaning you have many credit cards
If you are starting out with a loan or renewing a loan, one credit card is enough. You need a successful experience managing a single credit card before you take on additional credit obligations. As you gain successful experience and consider opening additional credit cards, consider your ability to pay and track credit cards.
If you notice that credit card management is out of control, it is an indication that you have too many credit cards.