If someone has a credit card with $5,000-$10,000 credit line, and the average amount of monthly payments of this person is around $1500, what is the best scenario for this person to increase their credit history/score? When they can pay all their expenses with only one credit card, is it a good idea for them to apply for more credit cards or try to increase their credit line to maybe achieve more credit history and credit score?
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Why do you want to increase your credit score?– JeffUKCommented Jun 22, 2021 at 19:51
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1@JeffUK: To get 0% car loans, home mortgage, etc.– user109157Commented Jun 22, 2021 at 20:56
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1@ensan3kamel: if credit scores in America work like they do in the UK, this guide to credit scores is well worth a read, in case you're labouring under any misunderstandings.– Paul D. WaiteCommented Jun 23, 2021 at 10:33
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money.stackexchange.com/questions/114696/… may be relevant as to why OP would want a better score.– FreiheitCommented Jun 23, 2021 at 15:41
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Depends on how disciplined/sytematic you are. If you are not, dont even think of getting multiple CCs– TCSGradCommented Jun 23, 2021 at 21:14
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4 Answers
Increasing the number of cards is a double-edged sword credit-wise. There's a trade-off between the amount of credit used (utilization), number of inquiries and open accounts (fewer is generally better) and average length of credit (churning accounts means a shorter average).
The main factor in your credit score is a good payment history. From what I've seen the number of made payments is not significant, but the number of missed payments certainly is. So making 10 payments on time is the same as making 1 payment on time, and making 1/10 late payments is just as bad as making 1/1 late payments. So the danger of getting many cards is that you lose track of when payments are due (or worse, you overspend and accrue more debt than you can afford), you miss even one, and you've completely negated any positive effect (if any).
In other words, you won't build your credit score much faster by having 10 cards instead of 1, but you can certainly wreck it if you make a mistake.
My advice is to not try and "game the system". Make your payments on time, use credit cards as sparingly as you can (don't spend money just to "get miles"), and your credit score will take care of itself.
answered Jun 21, 2021 at 22:03
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3"use credit cards as sparingly as you can" - I would interpret this as "use cash or debit cards whenever possible" (as opposed to "don't spend what you can't afford without debt right now, as far as possible"), but I imagine having a credit card without actually ever using it (the most sparing possible) probably won't help your credit score that much. Commented Jun 22, 2021 at 11:43
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12@NotThatGuy: I typically recommend avoiding debit cards entirely for day-to-day purchases. The fraud protection is better with credit cards (even in cases where is it is on-paper the same). As for the interest fees: Most credit cards don't charge interest if you pay them in full every month.– BrianCommented Jun 22, 2021 at 14:24
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1"use credit cards as sparingly as you can" - might be better interpreted as don't go into debt unnecessarily. Some advisors recommend using your credit card for your daily expenditures and paying them off entirely each month. This establishes a borrowing and payment history without creating debt (you had to expend funds anyway for bills, groceries, fuel, etc.).– ArluinCommented Jun 22, 2021 at 16:28
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@Arluin you can do that if you can track all of your balances easily and spend less than you make. The risk is that all of your spending is "hidden" on cards, not coming out of your bank account, making it "seem" like you have more money to spend than you actually do, and can;t pay off the full balances each month. You can do it, but it's very easily to slip into a "debt spiral". Commented Jun 22, 2021 at 16:49
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2@Ivan "Never do this" - are you saying you should almost never use a credit card at all or are you saying you should never pay off a credit card entirely each month? Or are you saying something else? Commented Jun 22, 2021 at 19:52
Age of accounts, the mix of credit types (revolving, installment, auto, mortgage), utilization rate and payment history are the key metrics of a credit score. If you're using 30% or more of your TOTAL available credit then that hurts your score until you pay it down below 30%. Every time you add a new card, the average age of accounts declines and affects your score.
As the previous answer said, don't try to game the system.
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1It should also be noted that new cards require a hard credit check so your score will drop; albeit insignificantly. However, if you open multiple cards in a 12 month period then that could trigger a big drop. Commented Jun 22, 2021 at 12:55
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1I question the utilization wisdom often passed around. Any time I carried so much as a 10% utilization through to my statement date (not payment due date) I would see a hit on my score on various free score services.– LogarrCommented Jun 22, 2021 at 13:31
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To add some info that isn't completely covered in the other answers:
A big concern I would have in your situation is the utilization percentage. As the other answers/comments note, >30% will have a significant negative impact, and >10% can have a minor negative impact that might depend on the scoring method. With a limit of $5,000, a $1,500 statement balance would be exactly 30%. With $10,000 you'd still be over 10%.
Even if you're paying that off every month, this could swing your score down depending on when your bank or credit card company sends updates to the scoring bureaus--generally this will be monthly but which day of the month can be hard to determine. As an example, if you had a limit of $5,000 and a balance of $1,501, and your bank reported that as your balance, your score would take a significant hit even if a full payment posted the very next day.
A new card would increase your total limit and help with this issue, but another option is to contact the bank/company of your current card for a limit increase. Every card I've used has the option to request a limit increase without a hard pull every 6 months. You may need to call them to request this, and you'd want to make sure they aren't putting through a hard pull as that would decrease your score temporarily.
Yes. But when you're just starting to build credit the bank wouldn't trust that for giving you a mortgage loan. Even if you had 20 credit cards with low utilization they would want a lot of other documentation and proof that you're good with money in other areas of your life. So just having 2 cards is fine. When I did it I had 1 recently paid off car loan and 1 card with 2 year history. A card with less history wasn't counted in my favor at all. You're going to need to show other proof that you're credit worthy. The good news is that if you're being responsible it's all pretty easy.
- 2 years of solid repayment history for at least 2 utility bills.
- 2 years of solid rent payment history.
- Reference letter from your landlord.
- Proof of employment.
- Proof that your average income over the last 2 years is high enough (tax records or certified accounting books). Basically any income that can't be properly documented does not count.
Now the lender may claim they don't need any of this stuff at first, but eventually, maybe when you least expect it like 2 weeks into a 4 week approval they say, hey we need this one item RIGHT NOW. Zero notice. Then they pull the same thing a few days later. You don't want to get surprised. Document, document, document. Don't expect landlords to keep good paperwork either. Best if you have copies of all your payments with exact dates.
