The right number of credit cards to keep depends on your current financial situation. If you have excellent credit, pay your bill in full each month, and have low balances, you can keep all of your credit cards. But, if you are trying to repair your credit to raise your score, you may need to scale back a bit.
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Choosing how many credit cards to have active varies from consumer to consumer. Some may believe the optimal number is between three and five, while others prefer less. You certainly must retain some level of credit, so the number of cards you keep may not be as important as their current status.
According to the information found on myFico.com, your credit score is calculated by using five key factors:
- Payment history
- Current balance
- Credit history length
- Type of credit
- Newly acquired accounts
Each of these carry a specific percentage and when added together, they make up 100% of your FICO score. This means, if you have three to five credit cards with good payment histories and low balances, you can keep them all without any negative implications to your score. The problems begin when you start making minimum payments or miss them altogether.
Having more than five active credit cards gets tricky because you must continue to make timely payments until the balances reach zero, even if you use them infrequently. This means the more credit cards you have, the more you must focus on managing your finances to ensure you never fall behind.
Which credit cards should I close?
Accounts that have recently been opened within the past 12 to 24 months have less history. If you are not using these cards at least once every other month, pay them off and request that they be closed.
If you have a credit card that you very rarely use, you should pay the balance, if any and close the credit card account immediately. The only exception to this rule is if the credit card has a long history. Because your overall FICO score is affected by longevity, you may cause it to drop if you close a long-standing account.
Rather than closing the account, make small purchases each month and pay the balance in full. For example, if your utility company accepts credit card payments, ask them to set-up automatic or recurring credit card payments so your account remains active. Remember, if your credit card company cancels your account it is more damaging to your credit score than if you initiated the request.
How can I improve my credit score?
You can improve your credit score by maintaining a steady number of credit cards and paying more than the minimum amount due each month. The credit bureaus look for patterns in your payment history and recognize proper funds management. One of the best ways to get your score up and moving in the right direction is by honoring your financial obligations.
Each year you are entitled to receive a free credit report.
You should exercise this option and log onto Free Annual Credit Report.com to monitor your progress. Once you have your credit score, you can see every vendor who made a negative entry. Take note of these vendors and contact each one.
Try to negotiate a settlement to pay any outstanding balances. After you have paid your past due debts, you can contact the credit bureaus and ask them to remove the negative ratings. This will help increase your score.
Will transferring my balance help my credit score?
Transferring your balance from a credit card with high interest and a large balance will improve your credit score. But only if the credit card you are transferring the balance from is newer than the credit card you are adding the debt to. You should also close the card once the transfer is complete.
If the credit card has more history, you should keep it open. You can still transfer your balance to a low-interest credit card so you can pay your debt down, but you should not close the account completely.
These days it can be difficult to determine how many credit cards you should keep active. There are so many people offering advice that it can become overwhelming. The best way to maintain a healthy credit score is to exercise extreme care when opening new credit card accounts while effectively managing the older accounts. It is possible to find a happy medium.
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