This is a common question, and the number of accounts you have (along with their balances) has a major effect on your credit score. So let’s dive in.
You want to have at least two major accounts on your credit report. Major accounts in order of greatest to least are:
1) A mortgage
2) An installment loan, such as a car loan or student loan, with a set payment amount and set end date.
3) A major credit card, one that can be used at any type of establishment, such as Visa, MasterCard, Discover, AmEx.
Individual store cards such as Home Depot, Macy’s, and Chevron are not major credit cards. If you have two major credit cards and one store or gas card, that is enough to achieve a top tier score of over 720.
If you don’t have a mortgage or an installment loan, you can have two major credit cards and achieve top credit. You don’t need to run out and buy an automobile under the excuse of building credit!
The ideal mix of credit is to have a major account (see list above) plus a couple of major credit cards with possibly a store card/gas card added to the mix. That is a nice mix.
A total of three to five accounts is sufficient to achieve a top tier credit score and qualify for the lowest interest rate and best financing. You don’t need 10 cards, and I personally do not recommend having that many for several reasons.
There are people with 10 open accounts that have top credit scores, but they are not in the majority — according to my 23 years of seeing thousands of credit reports.
You do not earn bragging rights by having a wallet overstuffed with every credit card out there. I don’t recommend it.
Building a positive portfolio is not a license for overspending.
Repair Your Credit Like the Pros DEEPER DIVE, Carolyn Warren
Many people who carry a lot of open credit have mid-to-poor scores, because they are carrying too much debt. Their debt-to-income ratios are over 50 percent, which docks their scores.
Having a stack of credit cards means more monitoring and juggling. Most credit cards will automatically shut down if you don’t use them for a time period specified by their own rules.
Credit is to be used as a convenience and to build a good reputation in the financial community. It is not so you can collect cards like they’re comic books. It is not so you can buy more stuff that you truly don’t need. It is not so that you can live off your cards while you sink deeper in debt.
Credit is a hot topic, and I welcome your comments. This blog requires me to approve all comments to keep out the spam bots, but I promise that I do read all and approve them same-day.