How to Fill Your Wallet Without Wrecking Your Credit

If having one credit card is good, is having several even better? And if more are better, should you apply for several at once, or pace yourself? These are the questions that invariably come to mind when credit card users realize how these products can benefit them.

The problem is that there are no simple answers to these questions: the best strategy depends on what benefits you are trying to earn, and what your long-term goals are.

Watching Out for Your Credit Scores

Credit card users are often confused about how applying for — and opening — new accounts will affect their credit scores. This is understandable, since doing so has several different effects on your credit score — some positive and some negative. For instance, credit scores take into account the number of recent hard inquiries for credit, as well as the average age of your credit accounts. Applying for and opening multiple new credit cards can ding your credit score by increasing the number of hard inquiries and lowering the average age of your credit accounts.

However, the dings to your credit will diminish over time, as most credit scores typically only factor in new credit inquiries from the past 12 months. And after two years, those inquiries will no longer appear on your credit reports. Additionally, the new accounts you open will eventually age and help your score over time. Furthermore, having additional credit lowers your debt-to-available credit ratio, which will also benefit your score.

Keep in mind, though, that because credit scores typically only count new inquiries within the past 12 months, someone who wants to open multiple lines of credit for any particular reason may want to make several concurrent applications in a short period of time, rather than continue to apply for new credit over the course of many months. This way, the effect on their credit goes away after 12 months, rather than being stretched out over a longer period of time.

Ultimately, it’s still critically important to pay bills on time and maintain a low level of debt in order to build or maintain good credit. Your payment history counts as 35% of your score, while amounts owed comprises another 30%. In contrast, the length of credit history contributes to 15% of the calculation, while credit inquiries count for 10% (the remainder, at 10%, is for the mix of credit types used).

When it comes to whether you can afford any dings to your credit in the first place, consider where you currently stand. Those with a FICO credit score above 740 are usually considered to have excellent credit. In fact, if the lender’s cut-off for excellent credit is 740, then it doesn’t matter if your credit score is 741 or 820; both scores will get you the same interest rate when applying for a new line of credit. Therefore, those with a high credit score comfortably have less to lose if their credit scores drop slightly.

However, if you don’t have excellent credit, but you’re applying for credit cards that require it, you’ll be doing yourself a disservice. By checking your credit scores before you apply, you can see whether you fall within the issuers’ credit score criteria. If the credit cards you want require better credit than you have, consider taking some time to build your credit and applying when your scores are higher. You can get two of your credit scores for free from Credit.com, along with a plan to improve your credit scores.

Can You Afford More Credit?

Applicants need to consider the consequences of applying for credit cards that affect more than their credit scores. Because, as nice as it can be to enjoy the benefits of multiple new credit card accounts, it can be a bad idea for some people to apply for several new cards at once. For example, anyone who may use their new credit card accounts to incur more debt should not apply for multiple credit cards, and should reconsider opening any new credit account.

If your goal is apply for multiple rewards cards in order to earn several sign-up bonuses, applicants also need to be careful. The most competitive sign-up bonuses always require that cardholders complete a minimum spending requirement within a limited time period, usually three months. By opening up several new accounts, cardholders can be tempted to overspend in order to earn the points, miles or cash back offered.

Also, if you’re looking to buy a house in the near future, keep this in mind: Since the mortgage crisis, lenders have become extremely cautious of any unusual activity by borrowers in the months leading up to a mortgage application. Those who are planing on purchasing a house or refinancing their existing property should avoid applying for new lines of credit in the months leading up to a new mortgage application.

Applicants can enjoy the benefits of multiple credit cards by applying for them in batches, but they should carefully consider the positive and negative consequences before doing so.