There are many myths out there regarding credit cards propagated by people who don’t know any better. Like the idea that you need to carry a balance on your cards to improve your credit score – total bullshit. Or that having too many credit cards will negatively affect your credit score.
Credit cards are like women. One’s alright, but eight or nine are much better.
If you buy into that “don’t apply for too many credit cards” garbage, you’ll miss out on sign-up bonus offers, which are the best way to earn rewards. Picking up bonus offers at every opportunity is how you get from earning a free domestic flight every now and then to booking first-class international flights.
Let’s look at whether your number of credit cards really affects your credit score and why you should sign up for a new card every three to four months.
Your Number of Credit Cards Doesn’t Directly Affect Your Credit Score
Credit bureaus use several factors to calculate your credit score. The number of credit cards you have isn’t one of them. Here are the factors they use, listed in order of significance:
- Payment history
- Credit utilization
- Length of credit account history
- Inquiries for new credit accounts
- How many types of credit accounts you have open
Applying for a new credit card results in a hard credit pull, temporarily dropping your score. But that’s only by a few points, nothing substantial. Approval on a new card also raises your available credit. If you’ve been carrying balances on your credit cards, more available credit lowers your credit utilization, increasing your score.
There’s no reason to overcomplicate how you handle your credit. Don’t ring up balances higher than 25 to 30 percent of your total available credit (combined across all your cards). Pay your bills on time.
I’ve followed that simple strategy from day one and it earned me a score of over 820. Whenever I apply for a card, I get it.
All it takes are the right financial habits and banks will line up to give you credit cards with huge bonuses.
More Credit Cards Earn You More Sign-Up Bonuses
I recommend signing up for multiple credit cards because sign-up bonuses are the best earning opportunities you have. When else will you make 50,000+ points/miles for spending a few grand?
This is easy math. Get the Chase Sapphire Preferred, spend $4,000 in the first three months, and bank 50,000 extra points.
To earn another 50,000 points using that card, you’ll need to spend $50,000. Or $25,000 in travel or dining, the categories where it earns 2x points.
It doesn’t make sense to do that when you could just open a new card and earn another bonus. You’ll spend the money anyway. It’s a matter of how many points you earn while you do it.
Open New Cards as Often as You Want
How often you open new cards is your call. I like to maximize my rewards, so I’ll meet the minimum spending for a bonus on one card, and then apply for my next card.
The standard time period for sign-up bonuses is three months. If you’re a big spender, you could get cards more often than that.
Annual Fees Aren’t a Big Deal, Just Don’t Pay Them More Than Once
When possible, choose cards that waive the annual fee for the first year. This way, you can earn bonuses without spending any money.
Don’t make an annual fee your deciding factor, though. The bonus will be worth more than the fee. 50,000 points is $500 cashback at a minimum or two round-trip domestic flights. Paying a $100 annual fee to get that bonus still leaves you ahead.
Whether the annual fee was waived the first year or not, downgrade the card before you reach the one-year mark. You don’t want to keep paying annual fees on a card after you’ve earned that bonus.
There is an exception to this rule. It’s fine to have one or two primary credit cards you keep because of their benefits. I’m keeping my Chase Sapphire Reserve because of its travel rewards. If you have a card that’s been particularly useful, it may be worth the annual fee.
Note that I recommended downgrading your card, not canceling it. Downgrading your card is an option when there’s a card with no annual fee in the same product line.
By downgrading your card but keeping the account open, you won’t harm your credit score. Canceling a card can lower your score by reducing your available credit and your average credit account history. But if you can’t downgrade the card, take the credit hit to cancel it.
What should you actually do with all these credit cards you collect? After you earn the bonuses, put them somewhere secure, like a safe.
If you have normal spending habits, sign-up bonuses are how you’ll earn most of your travel rewards. By opening new credit cards frequently, you can easily earn 200,000+ points per year.