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hey everyone it's mike adams here with the simple dollar and have you ever wondered if having multiple credit cards was a good thing or a bad thing you know is this something that will actually hurt your credit score if you have too many cards available you know that is a fantastic question that we're going to break down in today's video you know what i can say up front is that having multiple cards doesn't necessarily hurt your credit score but if those cards are used incorrectly or irresponsibly it can definitely damage your credit score so let's talk about some of the pros and cons here in today's video and of course for more great training just like this you can visit us over at the simpledollar.com we've actually created hundreds of articles all about personal finance all about helping you master your money so again visit us over at simpledollar.com and we even did a post on this exact topic here that goes into more detail so i'll link to that post below this video and you can check it out after you watch so how does having multiple credit cards actually impact your score well that's going to require us to dive in a little bit deeper on how how does a credit score even come to be you know what are the factors that go into creating your overall credit score so there's actually five factors that make up your credit score the first factor is going to be your payment history and payment history makes up about 35 of your overall credit score you know that's the biggest one and you know for very good reason right if you are missing payments and that's that's what payment history is all about if you're missing payments every single month or every other month or uh very often that's going to be reflected in your credit and so one great way to make sure your credit stays nice and high is to always make sure that you're paying your bills on time uh because again payment history is the biggest chunk it's like the biggest thing or the biggest biggest factor um that credit scoring agencies are going to look at regarding scoring your report so you're going to want to make sure they're making those payments on time the second factor is what's called your credit utilization ratio and this is your revolving credit so this isn't necessarily counting your installment debt like auto loans mortgage loans things like that this is going to be more towards your revolving debt like credit card balances and things like that now your revolving credit utilization ratio makes up 30 of your overall credit score so it's almost right up there with payment history as the number two factor um which is really gonna either have your score high or low um and what it boils down to is this you know are you maxing out your credit cards you know if you have a 10 000 limit on your credit card and you rack up you know 9 500 on that balance you know you're almost right at the top of that line of credit that particular line would have 95 credit utilization ratio and so a bank is gonna look at that and say wow you know they're almost maxed out here um that makes you more risky uh to the next lender so you're gonna have a lower you're gonna have a lower credit score because of that so you know in order to keep your credit utilization ratio in check you know the goal with your credit cards is to keep them below 30 utilization so if you have a credit card with a 10 000 limit you're going to want to keep the balance below 3 000 if that balance goes above 3 000 and now you're above 30 percent it'll start to have a negative impact on that portion which is very big of your credit score the third factor is the length of credit history sometimes this is called age of file and with this what they're looking for is the average age of all of your accounts so let's say you have an old credit card that you opened up when you're 18 years old and now you're 30 and you still have this credit card you know that credit card has an age of 12 years then you know and that's going to show if that was your only account you'd have 12 years as far as your length of credit um but let's say you have a couple another credit card in there that you got let's say last year one year ago well that credit card has an age of one year uh your other credit card had an age of 12 years you would add that together so 13 and then you divide it by the amount of accounts which would be two so that would change your average age of file would actually lower it down to 6.5 years okay so that'd be a little bit less on the age of file and so the longer the age of file the better okay uh banks and lenders like to see a nice long payment history they like to see that you've been using credit not defaulting on credit over the long haul and so length of credit history is actually 15 of your overall credit score and this is one of those reasons why when you're new to credit it can be tougher to get credit because you have no uh age of file you have no length of credit history so you know you're going to want to establish that and when it comes to your old lines of credit you know many times folks will want to close those old lines of credit maybe you gotta you have an old credit card you don't use it anymore and so you want to cancel it and you're going to open up this new one you know here at the simple dollar we'd advise you to not close that card if you do so age of file and so bear that in mind we don't want to be applying for too much new credit because it can ding that portion of your credit score the fourth factor is what's called your mix of credit or credit mix and what that means is that the banks like to see that you're using different types of credit so they like to see that you have let's say a mortgage uh a car loan or even a student loan but they also like to see that you have let's say a credit card and you're using that or different vendor accounts and you've paid them back on time so you have installment loans you have credit cards and you're paying all this on time you know that's a good mix of credit that's what banks and lenders really like to see and so the mix of credit makes up about 10 of your overall credit score and the fifth factor is new credit and so this boils down to how much new credit are you applying for you know every time you apply for credit you're going to get what's called a hard inquiry on your credit and so lenders don't want you to have too many hard inquiries in a short period of time typically if you have less than three inquiries in a two-year period uh lenders won't view that too negatively but if you have been applying for a ton of credit maybe you've been getting denied credit and so you're applying for multiple lines of credit you get denied and you have five or six hard inquiries on your credit you know banks are going to look at that and they're going to say okay obviously they're trying to get a lot of credit we don't know why it makes us a little bit more nervous here um and it makes this whole situation more risky uh um based on perception uh to the lender so a new credit makes up about 10 of your overall credit file and so you don't want to be applying for a ton of new credit within a short window because that will damage that portion of your credit score so you know now that we know a little bit more about that you know let's let's answer the question you know is it a good thing or a bad thing to have multiple lines of credit and here at the simple dollar we can safely say that having multiple lines in and of itself is not a bad thing um certainly if you are planning to use them responsibly and let's say you're using them just for your monthly transactions your monthly bills you're paying off the credit cards in full every month you know that's a great way to rack up rewards points okay cash back programs and again if you're looking for a credit card that offers rewards or offers cash back you know here at the simpledollar.com we've actually done a ton of due diligence on different credit cards that are available that are offering fantastic rewards programs so again you can visit us over at the simpledollar.com and in the credit card section we have a ton of training available for you and again a ton of recommendations on some of the best terms that are actually available on the market right now so again if you're looking for a new line of credit make sure to visit us over at the simpledollar.com before you apply in the end guys there really is no universal answer to how many credit cards someone should or shouldn't have you know it truly boils down to the individual you know if you're somebody that you know let's say we're a little loose with our budget and uh you know and personal finance kind of stresses us out a little bit um in that scenario maybe it doesn't make a lot of sense to have multiple credit cards where you're doing some transactions here and here and here you know for some people you know having multiple credit card balances can be you know a little daunting um and create a lot of pressure around you know paying those bills every single month so if if you're in that kind of a situation where it's like you know i just don't want to be balancing too many accounts well then in that scenario you know you got to look at what's best for you and only have the one account or one line of credit however if you are on your budget you're on your game and you know when you have no issue making these extra payments and making them on time every single month then having multiple lines of credit can actually be a really powerful thing it can give you access to leverage when you need it credit cards are great for emergencies you know if you you know need a credit card and you need to fall back on it for an emergency or something like that it's nice to have the credit there when you need it um and again you know you don't always have to use it just because you have the credit card doesn't mean you need to use it every single month however in order to keep the account open you're going to want to show some activity on that line in order to keep that line active and not worry about the bank coming around to try to reduce your limit and to give you a few more tips as we finish up here number one is you know and this is the toughest one sometimes for folks is because we want all these credit cards but you really need to be honest with yourself about your ability to manage all of these lines properly um you need to reflect on that you know before you apply for any credit whether that's a loan uh you know for a car a mortgage or opening up a new credit card it's always best to know where you stand credit wise before you do that okay and the better the credit score that you have the better the terms you will get on any of your loans and certainly with any new lines of credit that you open and finally focus on rewards cards that really fit your lifestyle as you start diving in and learning more about credit cards there are some credit cards that are better than others depending on how you use the card you know there are cards out there that will give you rewards let's say in miles let's say you're someone who travels a lot you want to rack up those miles um hey find yourself a good rewards program that's going to give you miles some people prefer cash back some people prefer to use their card only for certain expenses so they want to get the maximum amount of reward uh for all the transactions of running through the card you know the ultimate goal is to get the most rewards as you possibly can for utilizing that particular card so in closing guys the bottom line is multiple credit cards in and of itself does not hurt your credit score what does hurt your credit is if you use those lines of credit um irresponsibly you know you're racking up debt we're not paying it down we're certain you know definitely if we're not paying it on time all of those things will start to hurt your credit just having the available credit in and of itself does not hurt your credit so hopefully you guys found value in this training and in this discussion if you did make sure to give this video a like and give it a comment below and of course make sure to visit us over at again we believe that personal finance doesn't need to be complicated and we are here to help as well guys make sure to subscribe to our youtube channel we're gonna be putting out a ton of great content just like this to help you on your personal finance journey so that way you can master your money have a great day everybody we'll see you in the next video [Music] you