You know that you need active accounts in good standing to have good credit. But, every time you apply for a new credit card or loan, it causes a slight dip in your credit score. The answer to how many accounts you truly need is lower than you think and easier to maintain.
What’s the magic number?
Potential lenders like to see more than one account. And, they like to see accounts open for a long time, since the average age of your credit is one of the factors that determines your credit score.
We’ve found that three active lines of credit is the magic number where you benefit more from the positive entry than you are harmed by the inquiries on your account.
The proportion of how much you owe compared to how much available credit you have is a factor in your score. If you want more credit than a credit card company has extended, call and ask for a bump in your credit limit. Having high limits means that you are using a smaller percentage of your available credit at one time. It’s easy to go over 30% of a $1000 credit limit; much tougher to reach that when your limit is $10,000.
Does that mean you need debt?
To many people, having several credit cards means having a lot of credit card debt. Many people even believe that you need to carry a balance on a credit card for it to improve your credit score. But, it doesn’t have to be that way at all. Your active credit cards will show up on your account whether you use them on a regular basis or not. In fact, it’s better to use them as little as possible so that you are seen to be using the smallest possible percentage of your available credit.
Credit card companies will close an account that is never used. Usually, they will notify you before this happens. If you are worried about missing a message and losing an account, try this simple trick: set up one tiny bill to be automatically paid on your credit card each month. Then, set up your credit card bill to be automatically debited from your bank account each month. You never are at risk of losing the account and you are also never at risk of running up a balance or missing a payment. Since your payment history counts for about 35% of your FICO score, paying on time every month is vital.
The thing to remember is that lenders want to see responsible use of credit. By keeping a few cards open and not running up debt, you show that you are able to take on the responsibility of a larger loan and that you are ready for opportunities like home ownership.