Will Too Many Credit Cards Hurt Your Credit? Here's What Dave Ramsey Says
- Multiple credit cards could help you build credit.
- But if you're not careful, the opposite might happen.
- Be careful not to open too many cards to comfortably manage.
You'll want to be careful when opening credit cards -- that means not going overboard on the number you keep.
Having good credit is important. The higher your credit score, the easier it becomes to borrow money at an affordable rate when you need to. That could come in very handy when the time comes to take out a mortgage or auto loan.
Now one way to build credit is to establish a payment history that has you consistently paying your bills on time. And so if you have a credit card you manage to always pay on time and in full, that could cause your credit score to rise.
But it's important to be careful not to open too many credit cards. Going that route could actually hurt your credit. In fact, financial expert Dave Ramsey says your best bet is actually to not have any credit cards at all. But if you're going to open credit cards, he advises to stick to as few as possible.
A moving target
Your credit score can change over time, and your financial behavior can cause it to rise or fall. One thing you might do that results in a credit score hit is apply for too many new credit cards in short order.
Each time you apply for a credit card or loan, a hard inquiry is performed on your credit report. A single hard inquiry will generally result in a five- to 10-point drop in your credit score, which isn't catastrophic -- especially if your score is strong to begin with.
But think about what might happen if you were to apply for four credit cards within a period of a few months. At that point, you could be looking at a 20- to 40-point hit. That's more significant.
That's just one reason Ramsey cautions against having too many credit cards. Another reason is that the more credit cards you have, the higher your total spending limit becomes. That could open the door to untamed spending, which could not only leave you with costly debt, but also, extensive credit score damage.
Another big factor that goes into calculating your credit score is your credit utilization ratio. That ratio measures the amount of credit you're using relative to your total spending limit across your credit cards. The higher that ratio, the more your credit score could take a hit. And so Ramsey says that opening more cards could drive that ratio upward.
Now interestingly, opening more credit cards could also have the opposite effect. If you add a couple more cards to your personal mix but don't charge expenses on them, you might lower your credit utilization ratio by virtue of raising your total spending limit. But Ramsey doesn't tend to see things that way and thinks that fewer credit cards are better. (Actually, he thinks having no cards is better.)
How many credit cards should you have?
There's no single answer to this question. But a good rule of thumb to follow is to only open credit cards you need.
If you need an everyday card plus a travel rewards card, go for it if you can manage your spending well on both accounts. If you want a third card to give yourself more buying power, do it as long as you don't charge more in a given month than you can pay off by the time your bills come due.
A larger number of credit cards won't necessarily hurt your credit -- but it could. And that's a situation Ramsey goes out of his way to help consumers avoid.
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