A Myth Around The Credit Card World

Please note: This approach may not work outside the USA. Please be cautious while planning to open more accounts.

The above data is from my own credit report — and yes, this is one of the factors that Credit Report Bureaus look at when they decide on your creditworthiness. The myth? That having more credit cards hurts your score. Here's why that's not always true.

Reason 1: Credit Utilization

Having multiple credit cards can be beneficial for building credit and increasing your credit score. A higher credit limit across multiple accounts reduces your credit utilization ratio — one of the most important factors in determining your score. Using credit cards responsibly by making on-time payments and keeping balances low demonstrates to lenders that you are a reliable borrower.

However, it's important to use credit cards wisely. Having too many cards can be a risk if you're unable to manage them effectively, which can lead to missed payments, late fees, and damage to your credit score.

Reason 2: Credit Age Gets Stronger Over Time

Getting more credit cards builds your Credit Age more resiliently. The impact of a new credit account is much smaller when you already have many established accounts.

Let's understand it with math:

Scenario A: 3 credit accounts with an average age of 3 years. Add a new card:

New Credit Age = (3×3 + 1×0) / 4
             = 9/4 = 2.25 years  (a drop of 25%)

Scenario B: 6 credit accounts with an average age of 3 years. Add a new card:

New Credit Age = (6×3 + 1×0) / 7
             = 18/7 = 2.57 years  (a drop of only 13.8%)

Scenario C: 10 credit accounts with an average age of 3 years. Add a new card:

New Credit Age = (10×3 + 1×0) / 11
             = 30/11 = 2.72 years  (a drop of only 9%)

Key insight: The more accounts you have, the more resilient your credit age becomes against any future new accounts. The hit gets smaller every time.

Reason 3: Distributing Utilization

Having multiple credit cards lets you distribute utilization across all of them and bring your overall utilization down by increasing your total credit limit. This doesn't mean going all in with more credit cards — you never want to spend what you cannot pay back. A future article will cover a hack on how to reduce credit utilization with heavy usage without impacting reward points.

Conclusion

It is a myth that having more accounts is bad for your credit score. Yes, it will temporarily drop your score when you open a new one — so you need to plan appropriately. If you have an upcoming big purchase like a house or a car where the lender will make a hard pull, you don't want to open new accounts right before.

Plan it wisely. It's your life and your credit score — no one else is going to work on it. Reach out anytime if you'd like to talk through a credit card decision.