Tuesday, July 8, 2008

Too Many Credit Card Accounts -- Bad News?

I get this one a lot.

Just yesterday a friend of mine sent me an email regarding this very idea: that having too many credit-card accounts is bad. No doubt that my friend had been taught this lesson by a well-intentioned family member or friend. However, it's been my experience that having a lot of accounts does not mean that you're in trouble -- or on your way to trouble.

I have more than 15 credit cards. My credit score has never been better. What's more, all of these credit cards give me plenty of options. Think about it for a second. If you had just one card -- with one creditor (Citibank, for example) -- what would you do if Citibank raised your interest rate to some outrageous figure? Worse, what if you were carrying a significant balance on the card (as many Americans likely do)? Assuming that you had a $5,000 limit, and you were using $4,000 of that limit, you would be using some 80% of the credit limit. I'd be willing to bet that your FICO score, because of that kind of utilization, would not be strong enough to allow you to quickly apply for a new card (with a different creditor) in the period of time that would be necessary for you to avoid the impact that the new interest rate would have on your balance. Instead, you'd be stuck -- even if temporarily -- with a rate that packs a wallop in your pocketbook.

However, for those of us who believe in diversifying our credit-card holdings, we've got plenty of options in reserve. Indeed, I have cards with Chase, Citibank, Nordstrom (a great creditor, by the way), BMW, NASA, Pentagon Federal, HSBC (Saks Fifth Avenue Mastercard), Juniper, and Bank of America. All of these options mean that I don't have to worry about a particular creditor going psycho on me. Any creditor that pulls any funny business on me gets thrown in the sock drawer (timeout, if you will) until I decide it's time to use it again.

The trick to accumulating several cards, though, is doing it judiciously. Don't run out and apply for a host of cards on the same day. That's just plain stupid. Instead, get a few cards each year. Before you know it, your portfolio will be diversified. What's more, spreading out your applications over a period of time will also help keep your credit score intact. Applying for a bevy of cards at once is almost certain to result in a lower score and some denials as well. That's because the average age of your credit history is worth 15% of your FICO score. Thus, be smart when you begin to add new holdings to your credit-card portfolio.

Does having too many accounts really equal bad news? That hasn't been my experience at all. I've been able to diversify my card holdings without any trouble at all.

The real trouble that most people have is that they carry too much credit card debt. Having a host of cards with no balances, but plenty of usage, isn't a cause for concern.

Mom and dad were well intentioned when they gave us tidbits about credit -- but when it comes to credit cards, they missed the boat when they told us that having just one or two cards was all that we'd ever need. Tell that to the guy who only has one card and no options -- and very little available credit. If you ask me, that's the person who is playing dangerously.

Me? I'll take an option every day of the week, thank you very much.

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Anonymous said...

Great info, thanks!

Credit Matters said...

You are welcome.

Thanks for reading.

Anonymous said...

So I stumbled upon this blog totally on accident and I must say that it has been a wealth of information. Finally someone that has a sensible view on credit. For me, I am a 19 year old with 4 credit cards, 2 with $3k limits and 2 with $1k limits. My parents were very angry with me when I applied for new cards "without their approval" because "all I would ever need in life were 2 credit cards and it would hurt my score if I got too many cards." But I pay off everything on time and try never to get close to the max. So I have been wondering about having too many credit cards and your blog has answered my question perfectly. Thank you for your perspective on this issue and I will continue to do what I do to increase my credit and credit score. Keep up the awesome blogging, I'll be visiting frequently.

- A

Credit Matters said...

Heya, thanks for leaving a note here in my little area of Cyberspace. I'm glad that someone is reading it (launched the blog earlier this month).

I think what separates me from a lot of other commentators is that I speak from a position of knowledge. None of my writing is theoretical. I can write what I write because I have experienced it first hand.

When I was covering Wall Street as a reporter, I had to rely on sources. Not so here. I can rely on my own experiences and write about them freely.

By the way, it sounds as though you've got a firm grasp on your credit situation. Just keep on doing what you're doing.

Take care.

Anonymous said...

This blog is extremely helpful! In my past life, I would open an account simply for "earning" a discount then close the account. Those I did not instantaniously close, I was told by my bank to do so immediately in an effort to "increase" my credit rating. Little did I know that they were merely bullying me into only having 1 source of credit--them. I'm glad someone finally said it-- TOO MANY CREDIT CARD ACCOUNTS (especially of diversified sources) IS NOT BAD NEWS!

Credit Matters said...

Fact is, as long as you don't run out and add a bunch of new accounts at once, you'll be fine. The key is to open accounts judiciously.

I have 12 different cards -- from 12 different creditors. I like diversification. No one can hold me hostage.

Anonymous said...


I wandered over from creditboards. I like your posts, very down to earth and full of good info.

How far apart should you space opening new cards. I have been doing 1 every 8 months or so, can I go faster?

Thanks for the good posts

Credit Matters said...

In the past, I have grouped my applications together. That way my accounts age together. But there is no perfect way. It's whatever works for you. I just make sure that whatever it is that I am doing, I am not killing my score.

Given this credit climate, I would apply for credit somewhat cautiously. I've applied for one card since last October. I'm always keeping my finger on the pulse of the economy and the credit world. Right now is not the time to go hogwild.

That said, do some solid things until the situation loosens up. Then, when things do get easier, you'll be well positioned to implement your strategy.

At this point, I am applying for no more than two cards a year.

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