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How often should I open new credit cards?

 
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September 30, 2013
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QHi Eva,

I heard that to have good credit you need to open a new credit card every two years or so. Is that true? I got my first credit card seven years ago, and I now have three total. I opened the other two this year. I'm not itching to open any more – but would it help my credit to get a new one every few years? — George

ADear George,

There are many strange credit score myths floating around out there, but you've definitely come across one of the more peculiar ones. No, no and no, you absolutely do not need to open a new credit card every two years to have good credit.Ask Eva

The myth may have arisen from a combination of facts that are correct in their own right, but become incorrect when combined. First, yes, you do need to have several active credit cards to maximize your credit score. Second, it's best not to apply for too many credit cards within a short period of time, so spacing out applications over a period of time, even two years or so, is a good idea.

However, that does not mean that you have to keep applying for credit cards every two years to maximize your credit score. On the contrary: In your case, with three credit cards total, you are in great shape. Unless you want to get another credit card to enjoy a greater variety of credit cards — such as a rewards credit card and a low-interest credit card — you don't need to do anything.

In fact, adding more credit cards can also hurt you. Here are some reasons applying for a new credit card could be counterproductive:

New credit and credit inquiries affect credit scores. Each time you apply for a credit card, the card issuer pulls a copy of your credit report, and this inquiry ends up on your credit report and temporarily dings your credit score. Credit inquiries fall under the “new credit” component of FICO scores, which accounts for 10 percent of your score. While a single inquiry every two years is not likely to hurt you, it's better to avoid inquiries for credit you don't really need. The new credit part of FICO scores also takes into account how many new credit accounts you have and how long it has been since you opened a new account. Opening too many accounts within a short period of time is generally viewed as a sign that the person may desperately need credit, and that's considered a big negative.

It's hard to juggle a lot of cards: Let's say you're 30 now. If you open a new card every two years until you're 60, you'll end up with 15 credit cards in addition to what you have now. That leaves you with a high (and possibly tempting) cumulative credit limit and a lot of cards to keep track of. It also leaves you in the position of having to cancel cards, which could hurt your credit, depending on how much debt you're carrying on other cards. Plus, canceling older cards can shorten the length of your credit history in the long run — another good way to hurt your score.

On the other hand, there are times when opening a new credit card can improve your credit score. Getting a larger overall credit limit across all your accounts can affect the credit utilization component of your credit score. This is a measure of how much of the available credit you are using, and it accounts for 30 percent of FICO scores. It's best to keep that ratio low by keeping your balances low, and having a larger cumulative credit limit  helps with that. But because you already have several credit cards, this may not be relevant, particularly if you don't carry balances on your credit cards.

Your best bet to improve your credit score is to stick with the credit cards you have and follow good credit management habits. These three easy practices will keep your score at its best:

  1. Create a stellar payment history. Payment history makes up 35 percent of your FICO score, so it has the most significant impact. To keep your payment history stellar, use all your credit cards regularly, pay all the bills on time and, ideally, pay the balance off in full each month.
  2. Keep balances low. If you must carry a balance over from month to month, always keep it below 30 percent of the limit (preferably lower), both on each card and across all your cards. High balances will affect your credit utilization ratio, and this is one of the ways people most commonly end up damaging their credit score without knowing it.
  3. Take advantage of regular credit limit upgrades. Most card issuers will agree to a credit limit increase once a year, as long as the payment history and credit usage on the account are exemplary. As you keep expanding your total credit limit, this will help build your score by increasing your total available credit. It will also make it easier to avoid dings to your score when you do need to carry a slightly larger balance.

To apply for a credit increase, call your card issuer once a year and ask if you're eligible for a credit limit upgrade. Some issuers allow you to make the request online. In some cases the issuer will be able to approve you for the increase without pulling your credit report. If they do need to pull your report before giving an answer, make sure to decline if you're planning on applying for another loan in the near future as a hard pull of your credit will ding your score by a few points for a short time.

Applying for another credit card occasionally won't hurt you, but, since you don't really need one, why bother? With the credit cards you already have, if you follow the simple practices above, you're well on the way to excellent credit.

Got a question for Eva? Send her an email.


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