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Credit Cards: When to Hold ’em, When to Fold ’em

According to a recent Motley Fool article, average U.S. citizens carry eight credit cards in their wallets. So, what is the optimal number? It probably depends on your objectives and circumstances.

If you’re most concerned about maintaining a high FICO™ score, the number of cards isn’t as important as other factors. While Fair Isaac Corporation, the company that assigns the scores, doesn’t divulge the exact formula it uses, it shares factors considered with their respective weights:

Payment history: 35 percent
Amounts owed: 30 percent
Length of credit history: 15 percent
Credit mix: 10 percent
New credit: 10 percent

Having a small ratio of debt to available credit helps your score. Having six cards and owing $2,000 is better than having one card with a $3,000 limit and a $1,500 balance – provided you make payments on time. Fair Isaac says your FICO can suffer a little once you acquire more than seven revolving debt accounts. And opening too many new cards in a short period can be a problem.

Using multiple cards makes tracking spending more difficult. But even if you don’t use many of your cards, you still need to monitor them to make sure the bank didn’t add or increase an annual fee or someone hasn’t used them fraudulently.

Another way to improve your ratio with fewer cards is to periodically ask the credit card company to increase your limit by a few thousand dollars.

In addition to lowering your debt-to-available credit ratio, closing accounts can knock points off your length of credit history. For this reason, you should try to keep a few cards open long-term, especially any you had before you got married. (It’s important to keep some accounts that only have your name on them.)

You may need to use cards periodically so the company doesn’t cancel them. If you close an account, talk to a live operator and specify you want the account closed “at the cardholder’s request.” A closed account’s positive information will stay on your report from seven to 10 years.


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