These days, there are many great options available for credit cards. If you can’t decide which ones you want, you may be tempted to apply for multiple cards at once and see which cards you get approved for. However, doing this may negatively impact your credit score.
Before you send your applications for new cards, let’s explore what happens when you apply for multiple credit cards and factors to consider.
- Applying for a new credit card results in a hard inquiry on your credit report, which can hurt your credit score.
- Your credit score gets determined by your payment history, credit utilization, length of credit history, credit mix, and new credit.
- The ideal number of cards to have will depend on your situation and how financially responsible you are.
Applying for Multiple Credit Cards
Every time you apply for a new credit card, that will result in a hard inquiry, or a “hard pull,” on your credit report. That means a creditor will request access to your credit file to see your track record and determine how risky you are as a borrower.
In contrast, a soft inquiry, or “soft credit pull,” happens when you or someone you authorize checks your credit report. They can also occur when a credit card issuer or mortgage lender accesses your credit report to preapprove you for an offer.
While soft inquiries do not impact your credit score, hard inquiries can lead to a five-point drop in your credit score. Though a single inquiry will not have much impact on your score, multiple inquiries in a short period can hurt your score.
How Long Should You Wait Before Applying For a New Card?
There is no rule set in stone for how long people should wait between credit card applications. But, as we mentioned earlier, too many hard inquiries in a short amount of time can lead to adverse effects on your credit score. Waiting between each application will help cushion some of the blow, though, in the meantime, other factors can still affect your credit score.
Factors Affected When You Apply for Multiple Cards at Once
There are five key factors that make up your credit score:
- Payment history – 35%
- Credit utilization – 30%
- Length of credit history – 15%
- Credit mix – 10%
- New credit -10%
As you can see, your payment history and credit utilization make up a large part of your credit score. However, the other factors also play a role in determining your score. Let’s take a look at each one individually.
To maintain a healthy credit history and score, you need to make regular, on-time payments for all your loans. That goes for credit card debt, mortgages, auto loans, student loans, etc. Applying for multiple credit cards in a short time will not immediately impact your payment history. However, your credit score will dip if you struggle with balancing many payment due dates.
Whenever you miss a payment, your credit score can take a hit (and you may get fined). For example, I currently have a Better Balance Rewards Card with Bank of America. Every time I miss the due date for the minimum payment requirement, I get fined $25. Fortunately, after getting hit with a late fee one time, I learned my lesson and never missed a payment again.
To ensure you do not miss any due dates, automate payments directly from your bank account. However, note that you will need to have enough cash in your account at all times to cover the amount due or risk getting fined with an overdraft fee or returned payment fee.
Your credit utilization ratio is the percentage of your available credit that you use. The general rule of thumb is to keep your credit utilization below 30% to indicate that you can manage your credit responsibly. However, the lower your utilization ratio, the better!
Credit utilization is an area where applying for multiple cards can potentially have a positive effect on your score. Adding a new line of credit will increase how much total credit you have access to, thus decreasing your utilization ratio.
For example, before applying for my Chase Freedom Flex card in early 2021, I had roughly $4,500 available in credit between my other cards. After I got approved for the Freedom Flex, my available credit more than doubled. Meanwhile, my expenses remained the same, significantly decreasing my utilization rate.
If you add new cards, you can raise your overall credit limit. If you maintain the same expenses with the additional cards, your utilization rate will drop to new lows. However, if you do not stay disciplined after getting new cards, you risk overspending and racking up a lot of high-interest debt.
Note that your statement balances are what appears on your credit report. In addition to making regular, on-time payments, you should also check your credit utilization on your statement balance.
Length of Credit History
The longer your credit history, the better.
Lenders want reassurance that you are trustworthy and responsible. Because the length of credit history gets based on the average across all your accounts, obtaining several new cards can cause a drop in your score. If you have a card that is ten years old, but you recently applied for two brand new cards, your overall credit history will average out across all three cards. That will temporarily shorten your credit history, though your score should eventually rise back up if you use the new cards wisely.
As the average age of your accounts increases, your creditworthiness increases. If you have older credit cards, we recommend continuing to use them periodically to keep them active. That way, those lines of credit will remain open and boost the average age of your accounts.
The more cards you apply for, the more hard inquiries you expose yourself to and the higher the potential of coming off as “desperate” to lenders. When you use credit, you’re borrowing money from your lender, so the more credit you request, the less responsible you’ll look.
While opening three or four cards in a year will not impact your score much, opening that many cards in a single week will raise red flags. This gets seen as a risk to lenders, which could affect your ability to obtain new lines of credit in the future. Another thing to keep in mind is that hard inquiries will stay on your credit reports for two years, while those in the past year will affect your FICO Scores.
The last factor of your credit score is your credit mix. Lenders want to know that you can handle different types of credit responsibly. If you currently only have revolving credit, such as credit cards, applying for installment loans, such as an auto loan or mortgage, can boost your score.
With that said, you do not need to go out of your way to diversify your credit mix. As your lifestyle changes, you’ll naturally borrow money for various purchases. Currently, I only have credit cards, but in the future, I plan on purchasing a car and real estate properties, which will improve my credit mix.
How to Choose the Right Card
Check Your Credit
Before you look into credit cards, make sure your credit score is in good standing. If you have poor credit, your applications will be more likely to get denied. If you do get approved, you may have to pay higher interest rates.
You can access your credit report from AnnualCreditReport.com, which will provide your reports for free. If you use online banking, most banks will send you updated FICO scores regularly, which will give you an idea of where your credit stands. I check my FICO score regularly through my bank accounts and on Credit Karma to ensure that there’s nothing wrong with my credit.
Understand Your Spending Habits
Everyone spends money differently, so understanding your spending habits will help you determine which cards are best for you. I spend most of my “fun” money on restaurants and travel, so I look for credit cards that reward me for those types of expenses.
Take advantage of cards that will award you points, mileage, or cashback for your regular expenses. There are many different types of cards available today, so shop around for ones that will compliment your spending habits.
Find the Best Deals For You
If you are concerned about your bottom line, make a quick comparison of cards with annual fees versus free cards. Sometimes, a card with an annual fee may not be worth it unless you use the rewards heavily. Other cards may have zero percent APRs, which could be advantageous if you currently have a lot of debt.
For many people, credit card rewards are one of the deciding factors. If you are a responsible borrower, credit card churning could be valuable. I applied for the Freedom Flex partly to get the $200 sign-on bonus for spending $500 within the first three months. I felt that this was much more doable for me than its sister card, the Chase Sapphire Preferred, which rewards new cardmembers who spend $4,000 in three months. Given my relatively low spending, I would have needed to overspend to reap the rewards of the Sapphire Preferred.
How Many Credit Cards Should You Have?
There is no magic number of credit cards to have.
How many cards you should have boils down to your situation and how financially responsible you are. Some people can juggle ten or more cards at once, while others only need one or two cards. If you can manage multiple cards, go for it! If you think you will overspend or miss payments by having several cards, limit yourself to two or three cards.
With multiple cards, you’ll have access to more available credit. That allows you to make substantial expenses without impacting your credit utilization or maxing out your card. You’ll also have the opportunity to earn more rewards. I get rewarded for all my expenses, including restaurants, groceries, travel, transportation, etc., between all my cards.
While there are many perks to having several cards, there are also some risks. The more cards you have, the harder it becomes to manage monthly payments. Having a solid repayment strategy will be crucial to avoid missing payments or getting fined. Another risk is that you may not be fully taking advantage of your cards. One of the struggles I have right now is using all my cards regularly, as I do not spend much in any given month. If you have cards that charge an annual fee, you may want to reconsider paying the expense if you are not making the most of its reward structure.
The Bottom Line
If you have multiple cards, there are a few rules to keep in mind:
Use your cards strategically. Each card you have should accomplish a set goal. For example, you may want a card that rewards you for dining at restaurants, one that rewards you for buying gas and groceries, and a separate card with no foreign transaction fees for traveling.
Make regular payments. With credit cards, paying the total amount due by every due date is key to maximizing their benefits while minimizing adverse costs. If you are funding your lifestyle with credit card debt you carry month after month, it may be time to cut down on your expenses. If you can only make the minimum payments, that will cause you to accrue interest, which can then have a snowball effect down the line.
Space out credit card applications. If you are planning on opening several cards, have some downtime in between each application. That way, you won’t raise any red flags with lenders and ensure that you can responsibly use your cards.