Accumulating credit cards seems to be almost a rite of passage for many Americans—and it’s incredibly tempting to have lots of them. Seeing someone pull out a stack of flashy cards gives the impression that they have their finances under control.
But not so fast. As it turns out, having too many can have negative consequences.
“When it comes to managing your credit score, simplicity is often the best solution,” said Dayten Rynsburger, chief revenue officer (CRO) of Niche Capital. “People who only have one credit card tend to have better credit scores on average.”
According to experts, there are several important reasons for this. Read on to learn more about their findings.
Here you will also find the recommended minimum credit rating.
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With just one card you can manage your finances more easily
First, you are less likely to forget a payment or be overwhelmed by multiple due dates.
This reduces the likelihood of late payments, according to Rynsburger, which is crucial because payment history makes up about 35% of your credit score.
“By keeping everything consolidated, you are more likely to maintain a clean payment history,” he said.
Abid Salahi, financial expert and co-founder of FinlyWealth, said a longer credit history with a single card can contribute to a higher credit score.
“Length of credit history accounts for 15% of the FICO score, and those with a single, long-standing credit card account benefit from this factor,” he said.
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It keeps your credit utilization low
According to Rynsburger, you can keep your credit utilization low with just one credit card.
Credit utilization – the percentage of your available credit that you use – plays a significant role in your credit score, accounting for about 30% of it.
“With just one card,” he said, “you can better keep track of your spending and ensure you stay well below the recommended 30% utilization rate.”
In contrast, juggling multiple cards can lead to higher overall utilization, especially if you spread your spending across multiple cards, Rynsburger said.
Salahi advised along the same lines. “The key factor driving this trend is undoubtedly the credit utilization ratio,” he said. “Credit utilization, which accounts for 30% of the FICO score, is the ratio of total credit used to total available credit.”
He explained that people with only one credit card typically have a lower credit utilization ratio because they are less tempted to overspend and max out their available credit limit.
“The data shows that people with only one credit card have an average credit utilization rate of 24%, compared to 32% for people with multiple cards,” Salahi said.
It reduces hard inquiries on your credit report
Another factor is the possibility of less harsh inquiries being made to your credit report.
Every time you apply for a new credit card, the issuer usually conducts a thorough review that can temporarily lower your score.
“By sticking with one card, you avoid these inquiries and the associated drops in your score,” Rynsburger said.
It promotes better financial discipline
“The lesson from this, however, is not that everyone should rush to cancel their additional credit cards,” Rynsburger explained.
Having just one card is a good fit for those who are disciplined and prefer simple financial management.
“It forces you to plan your spending consciously and helps you avoid the danger of overextending yourself with too much credit,” he said.
Salahi agreed. “Having a single credit card account can help promote better financial discipline,” he said.
With fewer accounts to manage, Salahi says cardholders are more likely to make their payments on time and keep their balances low, which is critical to building good credit.
“According to an Experian study, consumers with only one credit card have an average credit score of 750, 34 points higher than the national average,” he said.
For anyone looking to optimize their credit score, Rynsburger says the conclusion is clear: Whether you have one card or several, the key is responsible management.
“Keep your credit utilization low, pay your balance on time and in full, and avoid taking out new lines of credit unless absolutely necessary,” he said. “If you follow these principles, you can achieve and maintain good credit, no matter how many credit cards you have.”
Salahi agreed. “The simplicity and financial discipline that comes with using just one credit card can lead to a better credit utilization ratio, payment history and credit history – all key factors in good credit,” he said.
By understanding these underlying factors, experts say, you can learn how to maximize your credit score with a single credit card.
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This article originally appeared on GOBankingRates.com: People with only one credit card have better credit scores on average – here’s why
