Contrary to popular belief, having more than one credit card is actually beneficial to your credit health. One of the most important factors in determining your credit score is your credit utilization ratio, pictured on the right. In fact, it makes up 30% of your credit score.
The lower your credit utilization ratio, the more of a positive impact it has on your credit score. In order to keep a low credit utilization ratio, the amount of debt that you owe must be significantly smaller than the amount of credit you have available. In general, if you want to have an excellent credit score, we recommend keeping your credit utilization ratio below 30%. Keeping it around 10% is even better.
This is where the benefit of multiple credit cards comes in.
The more credit cards you own, the more available credit you have under your name, making it easier to keep your utilization ratio low. Keep in mind that you can have a high ratio even if you pay your balance in full every month. The credit cards report your current balance (often your statement balance) and available credit to the bureaus each month. So if you only have one card, your balance is $8,000 and your credit limit is $10,000, you’ll have an 80% utilization ratio, even if you pay your balance in full. If you add another card with a $10,000 limit and still spend $8k per month between the two cards, your ratio will go down to 40%, providing a large boost to your credit score.
Apply for credit cards you have a better chance of being approved for.
Every time you apply for a new credit card, a hard inquiry shows up on your credit report. While hard inquiries do have a minor negative effect on your credit score, this negative impact is small and short-term. Compared to the big positive impact of lowering your credit utilization ratio, the effect of hard inquiries is quite miniscule.
When you apply for credit cards, first make sure that you are applying for a card that you have a good chance of being accepted for. While credit cards that require “excellent” credit usually look for credit scores over 700 and often 750, there are great credit cards that just require a “good” credit score, which may be as low as 650. Not only will obtaining one of these credit cards lower your credit utilization ratio and boost your credit score, but a lot of these credit cards also offer stellar rewards.
Here are some of our top choices (if you’re not sure of your credit scores, you can get them for free — as well as a detailed explanation — by signing up for a free trial of one of our top-ranked credit monitoring services.)
Best credit card for good credit:
Offering 0% for the first 15 months on both purchases and balance transfers, Chase Freedom is just as good or better than most cards targeting those with “excellent” credit, making it our top choice for those with just “good” credit. On top of letting you pay no interest for over one year, it offers great cash back rewards like receiving $100 cash back after spending $500 in the first 3 months. Plus, you will earn cash back on all of your purchases — 5% cash back on purchases in rotating quarterly categories and 1% cash back on everything else. With no annual fee, this credit card is the perfect tool to add to your credit arsenal — boost your credit score and earn cash while doing so.
Best credit card for average credit:
Barclaycard Rewards Mastercard
If your credit is just average (usually considered somewhere between 600 and 680), no worries, the Barclaycard Rewards Mastercard is another great option for boosting your credit score while earning rewards. This credit card offers no annual fee and cash back rewards. You can earn 2 points per $1 spent on gas, grocery and utility purchases, and 1 point per $1 on all other purchases. This card was designed for those with average credit, but if you’re boosting your credit score by lowering your credit utilization ratio with multiple credit cards, you may soon boost your credit score enough to get a credit card in the “good” or “excellent” category. Also, if you use the card to earn rewards and pay back your balance each month, you will not be paying any interest anyways.
Best cash rewards credit card:
If you have excellent credit and being approved isn’t a worry, then why not improve your credit score while earning cash? BankAmericard Cash Rewards is our favorite option for cash back cards because you can earn a $100 cash rewards bonus after spending at least $500 in purchases in the first 90 days. Indefinitely, you can earn 1% cash back on purchases, 2% at grocery stores and 3% on gas for the first $1,500 in combined grocery store and gas purchases each quarter. Add in the 0% APR for 12 months on purchases and balance transfers, plus no annual fee, and this card is superb all around.
It’s also important to note that a longer credit history reflects better on your credit score. Because of this, new credit users should not open new credit accounts too rapidly. As we mentioned, having more than one credit card lowers your credit utilization ratio and is great for your credit score, but this doesn’t mean you should open three credit cards all at once — slow and steady wins the race. To find the perfect credit card for you to boost your credit score, check out our comprehensive credit card reviews and comparisons, and try our personalized credit card chooser.