Credit accounts lay the foundation of your credit report. Without much credit activity, you likely won't have a credit score depending on the scoring model. Whether you have one account or ten, you might be wondering if there's a perfect number of accounts you should have. Let's shed some light on how your number of accounts can affect your credit situation.
How many accounts do I need?
First off, "credit accounts" refer to any account listed on your credit report: credit cards, mortgages, auto loans and personal loans, for example. There isn't an exact number of credit accounts it takes to get a "perfect" credit score. The optimal number of open accounts for you will depend on your situation. If you want to spread out your balances, so you aren't close to hitting your credit limit on one particular account, having more credit card accounts will give you more credit to work with. Opening new credit cards could also earn you better rewards deals, like cash back. But if you're content with how many credit accounts you have or you don't want to use credit at all, that's fine too. It's really up to you.
Impact On Your Credit
Maintaining, opening and closing accounts all reflect on your credit risk and behavior. These actions can influence a bunch of different factors that are figured into your credit score.
- Credit card utilization: Your number of credit cards will directly impact this factor, which is highly influential to your score. The more credit card accounts you have, the higher your total available credit limit will be, giving your balances more room to breathe.
- Hard inquiries: Hard inquiries may cause your score to drop by a few points initially, but they're necessary if you want to apply for a new account. The impact to your score usually declines as the inquiry eventually ages off of your report.
- Recent credit behavior: This factor looks at the number of new accounts you've opened. It isn't the most influential, but opening a lot of new accounts in a short period might suggest to a lender that you're desperate for credit.
- Account mix: Having different types of accounts generally shows that more lenders believe in your ability to repay debt. Boasting a variety of account types on your report can also establish that you have a positive track record of responsible credit behavior.
None of these factors are necessarily reasons to open more accounts or not, but they're something to consider. Let's go over a few scenarios to make this more clear:
Scenario #1: You're just starting out on your own and you've recently opened your first credit card. Should you keep applying just to try and boost your total number of accounts? Well, probably not. Stick to that one card and open another when the time is right. Keeping up your on-time payment history, an extremely influential factor, is usually more important than boosting your total accounts.
Scenario #2: You're an established credit user. You've proven that you can manage one credit card for several years, and you feel comfortable opening another card. Plus, you could use the extra perks and buying power. In this situation, a new account might be a good idea. A new card would help your credit card utilization rate and raise your number of total accounts.
Scenario #3: You're about to pay off your student and auto loans. Congratulations! You're worried, though, that you may see a dip in your credit score, which seems backwards to you. Your total accounts, account mix and age of credit history might be impacted by paying off your loans. Does this mean you should put off your repayments? Not exactly. You'll need to consider how much debt you're carrying, interest charges that add up over time and how these loans might limit your spending ability. Sometimes, other aspects of your financial situation are more important than your credit health.
There's no one magic number of total accounts that you should be aiming for. Your decision to open or close a credit card or loan should depend on the specifics of your financial and credit situations. What's most important isn't the specific number of accounts on your credit report, but what you do with them. Before you make financial decisions, just keep in mind how the number of accounts you have will affect other credit score factors. You can do so by checking your credit report and reviewing the most important factors for a snapshot of how you're doing. Soon, you'll be on your way to a well-rounded credit file.
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