Money Girl answers 8 frequently asked questions about credit cards and gives tips to maintain and build credit.
Once you open a secured credit card account and begin making monthly payments, you should see it listed on your credit reports if the company is reporting your information.
You can pull each of your credit reports for free, once a year, from each of the 3 nationwide credit reporting agencies (Equifax, Experian, and TransUnion) at annualcreditreport.com. Your report doesn't include your credit scores; however, you can get your credit scores for free.
Two to 3 cards should be sufficient for most people; but you can have many more and still have excellent credit as long as you manage them well.
Credit Card Question #6: Catherine asks, “How many credit cards should I have to build the best credit?”
Answer: There isn’t an exact number of credit cards you need to build excellent credit. How many cards you should have depends on your situation and how you use them.
I mentioned that making payments on time is generally the most important factor for your credit scores. The next, most powerful factor is credit utilization, or the amount of credit you use compared to your credit limits.
For example, if you owe $500 on a card with a $1,000 credit limit, your utilization, or balance-to-limit ratio, is 50%. For optimal credit, you should never exceed 20% to 30% of your card’s credit limit.
To achieve this, you may need to spread out your balances on more than one credit card so you have more total credit to work with. Two to 3 cards should be sufficient for most people; but you can have many more and still have excellent credit as long as you manage them well.
Consider having a low-rate card for times when you must carry a balance and a higher-rate rewards card for charges that you always pay off each month. No annual fee cards are best, but some rewards cards may charge a fee. It may be worth it, depending on the benefits you’ll get from the card.
Credit Card Question #7: Kelli asks, “I recently paid off 3 credit cards and then closed one of them. I was going to close the remaining 2 but heard that it would hurt my credit. What should I do?”
Answer: It’s true that closing or cancelling a credit card account—even one that you don’t use anymore—can hurt your credit. That’s because it causes your total amount of available credit to shrink, which causes your utilization ratio to increase, and your scores to decrease.
In other words, closing a credit card account means that your total balances become a higher percentage of your total credit limits, which makes you look riskier to creditors, even if you really aren’t.
If you’re planning on making a big purchase in the next 3 to 6 months, such as a home or car, I don’t recommend closing any credit accounts. But if not, and you really want to get rid of additional credit cards, space out cancellations over time.