Theres not a one-size-fits-all solution for the number of credit cards a person should own. However, its generally a good idea to have two or three active credit card accounts, in addition to other types of credit such as student loans, an auto loan or a mortgage.
Just remember: The number of credit cards you own is less important than how you use them. Be sure that you can keep up with your existing monthly payments before considering a new credit card.
Owning a home is a major milestone for many people However, getting approved for a mortgage can be challenging, especially if you have a complicated credit history with multiple credit cards In this article, we’ll explore how the number of credit cards you have can impact your mortgage eligibility and interest rate.
How Mortgage Lenders Assess Your Credit
When you apply for a mortgage, lenders want to see that you are creditworthy and can manage debt responsibly. They will carefully analyze your credit report and credit scores to determine if you qualify. Key factors lenders consider include:
-
Payment history – Have you paid your credit accounts on time? Late payments can hurt your credit.
-
Credit utilization – What percentage of your total credit limit are you using? High utilization can indicate risk.
-
Credit history length – How long have you managed credit accounts? A longer history is better.
-
Credit mix – Do you have experience with different types of credit like cards, loans, mortgages? Diversity helps your score.
-
New credit inquiries – Too many new accounts can lower your score temporarily.
-
Outstanding debt – How much do you currently owe across all accounts? More debt equals more risk.
How Multiple Credit Cards Can Help
Having several open credit cards can benefit your mortgage eligibility in a few key ways:
-
Improves credit mix – Mortgage lenders like to see you’ve managed different credit types successfully.
-
Lengthens credit history – Keeping old card accounts open maintains your history length.
-
Lowers utilization – More available credit lowers your percentage of credit used.
-
Earns rewards – Rewards cards incentivize spending that builds your credit.
-
Increases total limit – Higher overall limit allows you to use more credit without maxing out.
As long as you keep up with payments and avoid maxing out cards, having multiple accounts looks responsible to lenders.
How Multiple Cards Can Hurt Your Mortgage Chances
However, several credit cards also come with some potential drawbacks:
-
Higher debt burden – Juggling payments on many cards increases risk of missed or late payments.
-
Lower credit scores – Applying for many new cards triggers hard inquiries that temporarily lower scores.
-
Higher utilization – Maxing out several cards negatively impacts your credit utilization ratio.
-
Potential overspending – More available credit tempts some to overspend beyond their means.
-
Account management – Having many card accounts becomes harder to monitor and manage.
-
Delinquencies – Struggling to pay off many cards may lead to missed or late payments.
Too many open revolving credit accounts signals risk of over-extending your finances.
Tips for Managing Multiple Cards When Seeking a Mortgage
If you have several credit cards already, here are some tips to manage them responsibly when applying for a mortgage:
-
Pay down balances to lower your credit utilization ratio. Ideally keep it below 30%.
-
Avoid applying for many new cards in a short timeframe to limit hard inquiries.
-
Ask issuers to increase your credit limit on existing cards instead of opening new ones.
-
Set up automatic payments to avoid missed payments and late fees.
-
Consolidate high-interest balances to lower-interest cards to save on finance charges.
-
Monitor your credit reports and scores regularly to catch any reporting errors.
-
Close unused card accounts that are not your oldest accounts to simplify management.
-
Maintain on-time payments during the mortgage process to avoid score fluctuations.
How Many Credit Cards Is Too Many for a Mortgage?
There is no universal “ideal” number of credit cards to have when applying for a mortgage. Some experts recommend keeping open no more than 3-4 active credit card accounts prior to applying.
However, what matters most is not the number of cards you have, but your track record of using credit wisely no matter how many accounts you have. Having 10 cards that you pay on time and keep low balances on is far better than having 2 cards that are constantly maxed out.
Aim to have enough credit available to keep your utilization low, but not so many accounts that you can’t responsibly manage the payments. Avoid opening many new accounts right before applying for a mortgage.
Closing Thoughts
Managing multiple credit cards while pursuing a mortgage can be tricky. The key is using your cards strategically to build your credit mix, history, and scores, while avoiding overspending and keeping balances and utilization low.
With responsible use, several credit cards can actually help your mortgage eligibility. But irresponsible use of many cards can hurt your chances due to high balances, low scores, and missed payments. Pay attention to how lenders view your specific credit profile.
By monitoring your credit reports and scores, minimizing inquiries, consolidating balances, automating payments, and showing you can juggle multiple accounts wisely, having several credit cards should not hinder your mortgage approval. Follow these tips and you can leverage multiple cards to improve your mortgage qualifications.
Is it good to have multiple credit cards?
Having multiple credit cards, along with other types of credit, can be a good thing, as long as you use each one responsibly.
Two factors that contribute to your credit score are the number and type of credit accounts. If your goal is to get or maintain a good credit score, two to three credit card accounts, in addition to other types of credit, are generally recommended. This combination may help you improve your credit mix.
Lenders and creditors like to see a wide variety of credit types on your credit report. Keeping up with multiple credit accounts suggests to lenders that you understand how credit works and know how to manage the amounts you borrow.
Many credit cards also offer borrowers access to special rewards programs. These might include cashback options for certain purchases, travel benefits or other types of rewards.
How multiple credit cards affect your credit score
Having multiple credit cards can indirectly impact your credit scores by lowering your debt to credit ratio—also known as your credit utilization rate.
Your credit utilization rate is the amount of credit you use compared to the total credit available to you. Lenders usually like to see a credit utilization rate below 30 percent. A rate higher than 30 percent may negatively affect your credit scores.
When you open a new credit card, you increase the total credit available to you. That means youll be able to spend more before hitting that 30 percent credit utilization rate. If your rate is already at or above 30 percent, opening a new card could improve your credit scores by lowering your credit utilization rate.
However, the most important thing to do with multiple credit cards is to keep up with what you owe. Be sure to monitor how much you spend on each credit card and the payment due dates so that you dont go into credit card debt, pay high interest rates or get charged fees for missing a payment. Its also a good idea to pay off your credit card balances in full each month instead of only making the minimum payment.
How long before applying for a mortgage should I not open any new credit cards?
FAQ
What is the 2/3/4 rule for credit cards?
What is the 2 2 2 rule for mortgages?
For income verification, lenders typically require 2 years of W-2s, 2 years of federal and state tax returns, and your 2 most recent pay stubs. This documentation showcases your financial stability and readiness for homeownership!
How much do credit cards affect a mortgage?
The good news is, having loans or credit cards won’t stop your mortgage application in its tracks. However, the size of your outstanding balances could affect how much you can borrow. Mortgage lenders look at a number of different factors when deciding whether to give you a mortgage.
Do multiple hard inquiries count as one for a mortgage?
Multiple hard inquiries within a certain time period for a home or auto loan are generally counted as one inquiry.
Does keeping multiple credit cards open affect my mortgage application?
Keeping multiple accounts open, even if they are not being used, increases your total credit limit across all your cards. This may negatively affect your mortgage application. Close any unused credit card accounts and keep the balances low on the ones you need to keep open. And stay out of your overdraft!
Can credit card debt affect a mortgage?
Credit card debt can affect your credit score and make it drop. If your score drops too much, you could be denied a mortgage or pay a higher interest rate, which makes your mortgage payments much higher. This is related to the concept of debt-to-income ratio.
How do credit cards affect a mortgage application?
For example, if you have a credit card with a $10,000 limit and have a $5,000 credit card balance at the end of the month, your credit utilization is 50%. For this reason, it’s important to consider how you are using credit cards during a mortgage application, not only opening a new card.
Does your credit mix affect your credit score?
Your credit mix, or the types of loans you have, is a small factor in your credit score. Credit cards are considered a revolving account, but mortgages, auto loans and student loans are installment accounts. For rewards optimizers, you likely have multiple cards.
Does credit card debt affect your credit score?
Having credit card debt affects your credit score and can make it drop. Keeping credit utilization under 25% to 30% on each card is a good general rule. If your score drops too much, you could be denied a mortgage or pay a higher interest rate — which makes your mortgage payments much higher.
Does a new credit card affect your credit score?
New credit only impacts 10% of your FICO Score, but could make or break your mortgage application, making this factor a disproportionate factor when shopping for a new home. While a new credit card may only move the needle by a few points on your credit report, the timing can raise questions about how you’re handling your finances.