Having more than one credit card in your wallet can come in handy in an emergency. There are mistakes to avoid when managing and applying for multiple cards at once, however, and here they are.
Many credit cards now come with attractive perks that can boost your bottom line in more ways than one.
For instance, you could have one credit card that offers great cash back bonuses. Another may give you miles for air travel so you never have to buy tickets. And you may also have cards that are great for balance transfers or have no annual fees.
Regardless of what you have multiple cards for, there are some rules to follow when managing and applying for them. If you fail to follow these rules, you could damage your credit, which can make it harder to get financing in the future.
With that out of the way, let’s look at ways to apply for and manage multiple credit cards at the same time.
How Applying for Multiple Credit Cards Affects Your Credit Score
Five components make up your credit score:
- Length of credit history
- Payment history
- Credit utilization
- Credit mix
- New credit or credit inquiries
When you apply for more than one card at once, your credit utilization and credit inquiry components can be affected. Why is this significant? Because both make up a considerable chunk of your score, with credit utilization sitting at 30 percent and credit inquiries at 10 percent of the pie.
The Inquiry Effect
Applying for a credit card puts a hard inquiry on your credit report, which may or may not affect your score. Some lenders will see a load of hard inquiries as a warning sign. This will force them to look at your credit history, when you opened your last account, and other factors to determine if you present an excessive risk as a borrower.
If you have a solid history, you won’t be affected by hard inquiries as much. If your past is spotty, however, those hard inquiries from applying to multiple cards could cause more trouble than they’re worth.
The longer your credit history, the less effect a hard inquiry will have. You may drop a few points in score if your history is short or your number of accounts is low. As for how long a hard inquiry will last on your credit report, the answer is two years.
The Credit Utilization Effect
Many recommend keeping your credit utilization ratio under 30 percent. In other words, aim to use just 30 percent of your available credit across all cards and loans.
While opening multiple cards gives you more available credit and can lower your utilization ratio, it can backfire. Some creditors will look at those new accounts as risks that you may not be able to pay. Keep this in mind when filling out applications.
How to Manage Multiple Credit Cards
Here are some simple tips to follow when trying to increase your credit flexibility via various cards:
- Research the benefits of each card before applying. If you already have a travel rewards card, for example, you may not need another that serves the same function.
- To avoid the negative effect of hard inquiries, wait 90 days in between opening new accounts.
- Do your best to fully pay off your balances every month to keep your credit utilization under 30 percent.