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Does Having Multiple Credit Cards Affect Your Credit Score?

Rachel Horan

Rachel Horan

May 27, 20215 minute read
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One of the most common forms of personal finance is a credit card. It is typical for a person to hold multiple credit cards, each with different limits, that they use for different reasons.

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    But, how does having multiple credit cards affect your credit score? Can it damage your score or even improve it?

    According to Reserve Bank of Australia (RBA) data, there were 12,644,279 credit card accounts open in Australia as of March 2021.

    If you’re wondering whether multiple credit cards affect your credit score, here’s a rundown of what you need to know.

    What is a credit card?

    In a nutshell, a credit card is a plastic or metal card issued by a financial institution. It allows the cardholder to borrow a set amount of money to pay for goods and services to be paid back at the end of each month. There is a minimum repayment required, usually 3% of the closing balance, which must be met by the specified payment date. Alternatively, you could pay off the full balance on the credit card, and typically will not incur additional interest charges.

    There are two types of credit cards: cards that offer ‘up to 55 days interest free period’ and cards that have a ‘low interest rate’. Depending on the type of credit card held by the holder, the amount of interest charged, if any, will differ.

    Why do people have multiple credit cards?

    Credit cards can be a very convenient spending tool. Rather than needing to save up for a product or service, you can use your credit card to purchase right away.

    There are some benefits that come with having multiple credit cards including:

    Access more bonus offers Credit cards often have incentives such as discounted interest rates, bonus reward points, and free gifts. Having extra credit cards can allow you to reap more of these rewards.
    Earn more reward points Some credit cards have reward programs that allow you to accrue points that you can use for travel and grocery shopping. If you have multiple credit cards, it can help you save more points and, as a result, earn more rewards.
    Manage expenses separately As mentioned, some people have different credit cards for different uses. This allows you to separate spending into work, home, and travel.
    Backup for emergencies Having a spare credit card available can be useful in the event your wallet is lost or stolen and you don’t have cash available.

    How does a credit card affect my credit score?

    When you apply for a credit card, the credit card provider will conduct a credit check on you. This will leave a hard enquiry on your credit file, which indicates to other lenders that you have recently applied for a form of credit.

    One application isn’t likely to impact your credit score in the long term, but multiple applications in a short period of time can. This is because multiple applications for credit can be an indicator to lenders that you are in financial distress or that you are taking on too many credit accounts. This can lead to them rejecting your application.

    Whether you have one credit card or multiple, they will all be listed on your credit report. Regardless of how much of the credit limit you spend, the entire limit will be listed on the report. It will also include whether at least the minimum repayment has been made for the both.

    To get an idea of what might be included in your credit file, Equifax lists the following information about your credit card:

    • The date it was opened;
    • Whether it’s currently in use or not;
    • The credit card limit;
    • Your repayment history.

    How multiple credit cards can improve your credit score

    There are some ways that multiple credit cards can boost your credit score:

    • Paying on time: Paying off all of your debts on time will positively affect your credit rating. However, late payments will stay on your credit report for up to seven years and negatively impact your score. This is because it indicates that you have been unable to manage your credit. Making your repayments on time, however, indicates the opposite. Your payment history is an important factor that credit reporting agencies consider when determining your reliability as a borrower.
    • Amount of credit: The amount of credit you owe versus the amount available impacts your credit score. If you can reasonably manage multiple credit cards successfully, this can improve your credit score.
    • Types of credit: The types of credit you have can impact your credit score. Being able to manage multiple credit cards alongside other forms of credit like a personal loan or line of credit, can help improve your credit rating.

    How multiple credit cards can damage your credit score

    There are some ways having credit cards can have a negative impact on your credit score:

    • Newer accounts lower the average age of your credit history: Credit scoring positively reflects longer periods of credit usage. New credit accounts have not given you the time to establish whether you can responsibly manage it.
    • Hard enquiry on your credit report: Applying for credit means that the credit provider will conduct a hard enquiry on you. This can, in some instances, affect your credit score. Applying for multiple credit cards in a short period of time will negatively impact your credit score.
    • Risk of overspending: With more money at your disposal, you may end up overspending without realising it. Missing your repayments or paying late can both affect your credit rating negatively.
    • Closing a credit card can lower your score: Since you are reducing your overall credit amount, closing your account can sometimes negatively impact your credit score. However, there are many factors that can impact whether this is the case. These factors can include whether you were making payments on time, the length of time you had the credit card and whether you have other forms of credit being monitored under comprehensive credit reporting. Typically, if the card was well-managed, your score will remain unaffected.

    How to manage multiple credit cards

    There is no ‘correct’ number of how many credit cards a person can have. Many people can easily manage multiple credit cards, while others may find it more challenging.

    If you have multiple credit cards and are looking at ways to better manage them, here are some tips:

    • Create a budget with how much you can afford to spend on each card for each month;
    • Track the credit card payment dates to ensure you don’t miss any repayments and/or make late repayments;
    • Lower your credit card limit if the higher limit is not easily manageable;
    • If suitable for your financial situation, you can consider consolidating your credit cards with a consolidation loan.

    Copyright © www.jacarandafinance.com.au Jacaranda Finance Pty Ltd ® ABN 53 162 078 195 Australian Credit Licence 456 404, Pawnbroking License Number 4221738. The information on this web-page is general information and does not take into account your objectives, financial situation or needs. Information provided on this website is general in nature and does not constitute financial advice.

    Rachel Horan
    Rachel Horan

    Written by Rachel Horan

    Rachel Horan is a Content Writer for Jacaranda Finance. Rachel has previously produced content for Brisbane City Council, Black & White Cabs, and Clubs Queensland. She has a Bachelor of Mass Communication with Distinction from the Queensland University of Technology.

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