Will having more credit cards increase your credit score?

Official blog of Refresh Financial

Will having more credit cards increase your credit score?

increase your credit score

This is a question we have often been asked here at Refresh. There is a belief that if you are not using a credit card, the account should be closed to increase your credit score. But is that correct?

The short answer is no. In fact, closing a credit card account that you are no longer using could do the opposite and have a negative impact on your credit score. It all comes down to how you are using your other sources of credit.

Let’s take a deeper look.

In this scenario, Bob has three credit cards and a line of credit. His line of credit is $10,000 and he’s used $4,000 of it on home renovations. His credit card limits are $2,500, $10,000 and $5,000. On each of those cards, his balance is $1,000, $3,000 and $0.

  • Line of credit: $4,000 used of $10,000
  • Credit card 1: $1,000 used of $2,500
  • Credit card 2: $3,000 used of $10,000
  • Credit card 3: $0 used of $5,000
  • Total available credit = $27,500
  • Total balances = $8,000
  • Credit usage percentage = 29% - a credit usage percentage under 30% is going to help increase your credit score. Over 30% and it will start have an increasingly negative affect on your credit score.

Bob has been working hard to pay down his debts, and with his $5,000 credit card balance at $0, he wonders if he should close the account. However, look what happens to his credit usage percentage if he decides to do this:

  • Line of credit: $4,000 used of $10,000
  • Credit card 1: $1,000 used of $2,500
  • Credit card 2: $3,000 used of $10,000
  • Credit card 3: $0 used of $5,000
  • Total available credit = $22,500
  • Total balances = $8,000
  • Credit usage percentage = 35% - Bob’s credit usage percentage has increase from 29% to 35% without him doing anything. Over 30% and this figure is going to start having a negative affect on his score.

What should Bob do?  

The right course of action for Bob depends on his personal circumstance and his spending habits.

Bob is a big spender, and he is easily tempted by the available credit and knows that if he doesn’t close his credit card account he might end up spending it. So, he must weigh up the options:

  • Option A: Keep the account open and keep his credit score moving in the right direction – but risk spending the credit and going into debt.
  • Option B: Close the account and remove the temptation to spend but let his credit score take a hit.

For Bob, the answer is easy. Close the account. It’s better for him to work a little bit harder on building his score and paying off more debt after closing the account than to be in debt that he will struggle to pay off. If he ends up spending the extra credit available, he won’t be doing his credit score any favours anyway, as his credit usage percentage will increase with the additional spending. Available credit will only work in Bob’s credit score’s favour if it remains available credit, not used credit!

If, unlike Bob, you know you can have credit available without being tempted to spend it, then keep the account open (and maybe just cut up your card instead) so that your available credit remains as high as possible.

There are several factors that help increase your credit score, but how much of your available credit you are spending is a big one, accounting for 30% of your credit score. If you struggle with using a credit card responsibly, perhaps it’s time to consider a secured card like the one we have at Refresh Financial. A secured card will help increase your credit score without the risk of you going into debt, plus we have a pretty neat tool that will warn you when you’ve started using too much of your available credit so you can quickly pay some of your balance off and continue working towards a better credit score.

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