credit inquiries

How Many Credit Cards Is The Right Amount?

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Raise Credit ScoresThis question comes to me from a client in Kentucky.  There are a lot of theories on what is best and the credit bureaus won’t tell anybody their formula.  But after discussing with others who are in the credit education business we have generally come to the same conclusion.

The first part of the answer lies in the amount of available credit line you have.  Let’s say you have $2,500 of available credit line on two credit cards.  And that you have balances on Card A of $1,500 and zero on Card B.  In this scenario you will likely have a lower credit score because you are carrying 60% of the available credit line on one card when the optimum amount has proven to be around 30%.  This is the standard thinking in the industry

However, as one of my colleges points out, you would only be carrying a combined total of 30% when using the combined credit limits of both cards.  Based on the credit reports I have reviewed there is truth here as well and the likely answer is that both factors are involved in calculating your credit scores.

The second part comes from reviewing those same actual credit reports and seeing consumers who are carrying balances on say 4 to 7 credit cards and still holding 740 FICO scores and above.  What became obvious was that those with the higher scores were typically below 35% of their available credit lines. Those with scores in the 600’s were carrying a higher ratio to their overall credit lines

So…a possible way to raise credit scores if you are carrying ratios above 35% would be to apply for additional credit cards and not use them, thereby lowering your ratio of balances carried against your available credit lines.  Of course, the obvious and first step to be taken to raise your credit scores is to pay down your balances on the way to paying them off.