Are More Credit Cards the Path to a Higher Credit Score?

Credit cards are an incredibly popular financial tool -- 80% of respondents to a recent survey by The Ascent admitted to having at least one. But some respondents had more, and in a particularly interesting finding, the largest percentage (28%) of those with credit scores between 800 and 850 (a FICO® Score in this range is considered "exceptional") had four or more credit cards. Meanwhile, 43% of those with credit scores of 579 or below ("poor" for FICO® Scores) had zero credit cards.

What's the relationship there? If you're trying to boost your credit score, should you add more credit cards to your wallet? Not necessarily.

Correlation does not imply causation

It's natural to wonder which came first: the higher credit score or the multiple credit cards? But the relationship at play here isn't a causal one.

People with lower credit scores might struggle to be approved for a credit card, while those with higher credit scores can be approved with ease. People with higher credit scores likely also have a longer credit history, which translates to greater ease in getting credit card approvals and also a higher level of comfort using credit cards and managing those accounts.

What impact do credit cards have on your credit score?

Having more credit cards can improve your credit score. Let's say you currently have two credit cards: one with a credit limit of $2,500 and another with a limit of $5,000, for a combined total credit limit of $7,500. You're carrying a balance of $750 on the smaller card and a balance of $2,000 on the larger one, so your total credit utilization ratio across both is almost 37%. Ideally, it's best to maintain lower credit use -- keep your usage to 30% or less of your credit limit to avoid a negative impact on your credit score.

If you apply for a third card and are given a limit of $3,000 on it, you now have a total credit limit of $10,500. And with your existing balances, your credit utilization ratio is now just under 26%. You didn't pay off any existing debt, but by virtue of increasing your credit limit with a new card, you may see a bump in your credit score.

But beware! Having more credit cards can also pose a risk to your credit score. If you have access to more credit and struggle with overspending, you could end up with higher balances that you have difficulty paying off. And credit card interest is extremely expensive and can grow your existing balances exponentially. As of this writing, the average credit card APR is 28.05%, according to Forbes.

How can you achieve a higher credit score?

As you can see, having more credit cards can give you the chance to improve your credit score, but if you're not careful, it can have the opposite effect. So if your credit score could use some help, try these moves rather than rushing to apply for new cards.

• Pay your creditors on time: Payment history makes up the biggest percentage of your FICO® Score, at 35%. It is crucial that you prioritize making those credit card and loan payments on time every month. This tactic was the cornerstone of how I repaired my credit in the wake of the short sale of the house I used to own. It works.
• Comb through your credit report for errors: You can get a free copy of your credit report every week through the end of 2023. So jump over to AnnualCreditReport.com and get your reports. If you find errors (like accounts that don't belong to you), you can have them removed by the credit bureau, boosting your score.
• Pay down existing debt: Paying off debt is hard, but it's worth it. I raised my credit score by 100 points in less than a year over the course of paying off many thousands of dollars in debt. The second-largest factor for your FICO® Score (30%) is your amounts owed, so if you can chip away at your debt, you'll see a positive effect on your score.

Credit cards are absolutely useful and can certainly give you the opportunity to improve your credit score. But don't assume that having more of them is always the key to better credit.