Too Many Credit Cards?

In response to my post earlier in the week about the latest Chase Freedom bonus categories, a reader named Steph wondered how many credit cards is too many?

She’s apparently planning on buying a house later in the year and is concerned about the possible impact of opening new credit card accounts on her credit score, which is currently above 750. She currently has four open accounts.

I actually posted a poll on credit card accounts back in 2006, and I’ve left it open ever since. To date, there have been 660 responses and nearly half of all respondents (49%) have 2-4 open credit card accounts. Thus, Steph is currently in the same category as the bulk of FCN readers.

Interestingly, 4% have zero credit cards, and 2% don’t have any credit or debit cards. On the other extreme, 3% of all respondents have 20 or more — including our pal with the most extreme credit card collection that I’ve seen — over 150 and counting!

But just because others have a certain number of cards doesn’t make it a good (or bad) idea. Especially not if you have unique circumstances — like if you’re planning on buying a house soon.

Instead of focusing on the number, I would look at the types of things that go into your credit score, as well as factors that a mortgage lender might consider. For example, new credit application and the length of your credit history both factor into your credit score. Thus, opening new accounts could negatively impact your score.

At the same time, credit utilization also factors into you score, so having a larger amount of total credit available, holding your balances equal, will improve your utilization ratio and thus your credit score.

The wild card here is what effect new credit applications will have on your mortgage application independent of the effect on your credit score. If I was a lender and I saw someone applying for new credit shortly before applying for a mortgage… Well, let’s just say that I wouldn’t view it as a positive.

Ultimately, while I don’t let credit score considerations govern my financial decisions, and I’m not above applying for credit cards to cash in on juicy bonuses, I’d personally avoid opening any accounts if I was thinking of applying for a mortgage anytime soon.

Getting approved for the mortgage, and getting a favorable rate while you’re at it, are way more important than cashing in on some credit card freebies. In other words, don’t be penny wise and pound foolish.