Is having multiple credit cards good or bad for my credit score?

Are you planning to make a major purchase, such as a home or car, in the near future? Unless you’re flush with cash, you’ll need to borrow money to finance it. However, lenders won’t just hand you a stack of money on a silver platter. They’ll want to make sure you’re likely to pay it back. How do they determine that? By looking at your credit score.

A good credit score enables you to obtain a lender’s best rate, while a less than stellar credit score may force you to pay a higher rate or it could get your loan request denied.

If you’re like most Canadians, you have a credit card. A credit card can be a powerful financial tool when used responsibly. In our daily lives, we come across a lot of offers to sign up for credit cards. In the mail, at the mall and in the supermarket. So, is having multiple credit cards good for your credit score? It depends.

The second most important factor that counts towards your credit score is your available credit (otherwise known as credit utilization). When you sign up for another credit card, it helps raise your total available credit, which is how much credit you have at your disposal. Lenders care about this figure because if you decided to go on a spending spree, you have more credit to use. To calculate your total available credit, take your credit limit and subtract any balances you’re carrying on your credit cards and voila, you have the figure.

Ideally, you’ll want to aim for a credit utilization of 35 percent. That being said, make sure you never exceed 70 percent, even if you pay off your credit cards in full every month because it can negatively impact your credit score. That’s because lenders see you as a riskier borrower since you’re spending close to your limit.

Having multiple credit cards can be a good idea, as long as you can control the temptation to spend. If you’re always maxing out your credit cards or regularly carrying a balance, it’s probably not a good idea to sign up for a second or third credit card because you’re more likely to carry a balance on those, too.

Other reasons you might want to sign up for multiple credit cards is in case of fraud. For example, if your primary credit card is frozen due to fraud, you’ll want to have a backup credit card to meet all your daily spending needs.

Rewards is another reason to have multiple credit cards. Some credit cards are more rewarding for purchases than others. For example, some cards offer higher rewards on groceries and gas, while others let you choose the spending categories with the higher reward accrual. Just don’t spend more than you otherwise would or else the rewards won’t be worth it. There’s no credit card in the world where carrying a balance is worth one or two percent in rewards.