Your credit score is the one which defines your overall financial health, hence it’s very important to take care of it & to know about the components which can affect it or damage it.
We already know that default in payments, late payments are some of the factors which affect your CIBIL score. But there is always a confusion among the users that – can having too many credit cards can also hurt their credit score? In this blog, we will be discussing this topic is detail & will try to clear all your doubts regarding this.
Having multiple credit cards generally won’t hurt your credit score.
However, if you are making your debt payments on time and keep the credit card balances low, your credit score will generally be good.
But in case you have multiple credit cards and you are using them irresponsibly, then, in this case, your credit score may drop considerably.
Here’s the breakdown of how is your credit score affected by having multiple credit cards.
- Payment History:
Payment history alone is responsible for 35% of your credit score. This includes all the debts you have taken – but most importantly your credit card debt. Lenders are very quick to report even a day of default, and this adversely affects your credit score.
If you regularly pay your outstanding balance for all your credit cards, then it is not going to affect your credit score even when have multiple credit cards. Remember that even a single day late payment can affect your rating negatively. If you have more than one card it becomes a little difficult to track all your payments. And as payment history alone is responsible for 35% of your credit score you can’t afford to take a risk.
- Debt to Credit Ratio:
Debt to credit ratio is responsible for 30% of your credit rating. This is also referred as credit usage or credit utilization ratio, this ratio denotes the outstanding debt on your credit card with respect to the available credit. If it is more than 30% then the ratio hurts your score. Using more than one credit cards can improve your score, as they provide more available credit to you. However, it can also affect your credit score if your total outstanding debt is more than 30% of your available credit.
- Length of Credit History:
15%. This is where individuals with various credit cards can fall into hardship. Building a dependable history of on-time instalments improves your score after some time. Individuals with incredible financial assessments have a normal age of 11 years for the majority of their cards, with the most seasoned card being 25 years of age. If your record as a consumer is short, including such a large number of new cards can continue hauling the normal age of your credit records down, which can haul down your FICO assessment.
- New Credit
Almost 10% of your credit score depends on your new credits. Anytime you have a new credit source granted to you, your overall credit score increases a bit.
This also negatively affected whenever you avail a new card. This is because new credit always increases your credit risk. Hence having multiple cards is also a red flag to you.
- Type of Credit
This contributes 10% to your credit score. Credit bureaus always check upon how you manage your debt across different types of credit accounts. In case all of your credits are of one type, it can affect your score. For an overall good credit score, one’s credit history should consist of a mix of credit. This can be retail accounts, personal loans, auto loans or a mortgage loan.
Quick Tips to Maintain a Good CIBIL Score
- On-time payment for all your debts including Credit Card payment
- Avoid Applying for multiple loans at a time.
- Avoid having multiple credit cards.
- Maintain a good credit utilization ratio on your credit card.
- Make full payments for your credit card if possible.
- Always pay more than the minimum amount due on your credit card.