Building Credit...the More Credit Cards the Better?

[~attrACTION~]

About 6 months ago, I couldn't get approved for a credit card if my life depended on it. Now, with my business doing better and spending a lot more money, etc., I get credit card applications in the mail everyday.

I currently have a Chase Visa and a Capital One Platinum Visa. Neither have annual fees.

Is it better to have 5 or 6 cards? I figure having 5 or 6 credit lines would be nice. Not that I ever go over my limit or spend money that I don't already have (unless it's for investment). I was just wondering how many credit cards you guys have, and especially the more wealthy people - is having more credit cards a good way to build credit?

Thanks for any info.

 

[djSlvt]

Credit Cards can lower your credit score, how? I dont know.


I had like 12 by the age of 20.



I worked with the wisest dudes that do real estate, among other things I worked for the state, wise guys, lawyers, you name it. Thats why I dont bend for anyone, if you got a chance reading my handling work issue thread. People think illegal means can take advantage, but they dont understand, they have to loose so much, I have nothing to loose. Watch some tony montana for a change. But in any case, the dude I worked with build he's credit so that he can get big loans from banks to buy expensive real estate. You do this like so, go to a small bank (not a big name bank) and take out a loan. Pay it so that you dont have to pay interest, pay big payments, then pay it off with that same loan money. You can even take several loans from several banks and pay each one with the other one. Small banks will not question why you need money, as much, and they will write good stuff about you. In four months worth of time you can have a really good credit history..

I think Carlton Sheets talks about this technique, but Im not sure. And yes, this is as real as DD and Mystery is. I.e. building credit with loans that you dont pay interest on because you are paying them off too damn fast.


That's a way to build credit fast, enough to swing it big way with cash.


I build my credit history by making purchases and paying everything on time. My score is pretty good, but I wont be able to get a lot of cash with my history. For that you need what is described above. My only flaw is when I didnt pay for some VHS tapes when I was young. They send you a sh1tty offer for CDs and VHS tapes when you buy a VCR. So I signed up, didnt like the deal, ignore them and it went from 24 to 240 bucks and I didnt pay them. Then I had a boil on my a55, obviously didnt pay the bill when it arrived, but even with that crap my credit history is pretty good because everything else is flawless.

Basically, a credit card = for me a way to buy things. Then you pay it at the end of the month all at once. I carry cash, but that is only for my barber, and thats pretty much it, I have $100 worth in my wallet, and thats for my barber! Can get a year worth of hair cuts with that!





P.S. the above suggested material you can order risk free for 30 days, copy the CDs and send it back for a full refund. Or just eMule the stuff.

 

[Francisco d'Anconia]

It's not the the amount of credit cards that causes problems it's your spending habits. Plus yearly fees are just a drop in the bucket if your interest rate is in the double digits, your interest for one month could be as high as the yearly fee depending on your spending habit.

 

[Bonhomme]

If you want to build credit for investment/business purposes (which is the only reason one should, IMNSHO), the way to do it (in the USA) is to start a business, get a Federal EIN (Employer Identification Number), and get your credit in the name of the business.

That way, balances have much less an effect on your cerdit score, and you can accumulate much more credit on way better terms than if you attempt to do it in your own name.

I wish I learned this 10 years ago.

********

The amount of available revolving credit and the ratio of balances to available credit on personal credit lines downgrade one's credit score. They may even have more of an effect than your payment history!

This is reportedly much less a factor for business credit, at least in the US.

 

[Bible_Belt]

The difference between 5 and 6 cards is very little. But more is not better in regard to number of cards. Every time you apply for credit, your score will drop a couple of points, and it is a negative to have a ton of cards that you never use. The rating agencies consider three numbers for each account: current balance, current limit, and maximum historical balance. If you never use it, it shows. An account does not help you unless you use it, carry a balance (for even just 1 month), and then pay it back on time. "On time" means not more than 29 days overdue. Revolving accounts report the number of times that you have been 30, 60, or 90 days overdue. You can be a couple weeks late every month without it showing on your credit report, although you still have to pay late fees to the lender.

 

[Francisco d'Anconia]

...Every time you apply for credit, your score will drop a couple of points, and it is a negative to have a ton of cards that you never use. ....

Partially true. Your credit score is ticked depending on what type of inquiry is being performed. Credit cards, yes. Home mortages, you are allowed I believe 8 queries within an two month period before it effects your score.

Having a ton of cards that you don't use isn't a bad thing either when companies tally your debt ratio. For example, a person owing a total $2500 across 10 credit cards each having a $1000 credit limit has a debt ratio of 25% [2500/(10*1000)].

Compare that to a person owing a total of $2500 across 5 credit cards each having a $1000 credit limit. That person has a debt ratio of 50% [2500/(5*1000)]. The second person would be considered at higher risk.

 

[Page]

Also, you should opt out of those pre-approved credit card offers. If you want more credit, you should go after it yourself instead of waiting for offers to show up.

Here's why: To pre-approve you, they must pull your credit info every time. However, every time your credit info is pulled, it automatically drops your credit rating slightly. It's totally stupid, but it still happens anyway.

If you end up throwing those offers in the trash, (like most people do on average) you are allowing your credit rating to be perpetually lowered for no reason. The more of those offers you receive, the more this affects you.

Plus, a lot of the offers aren't that great anyway.

The same thing happens when you shop around for loans, so in that vein, you should forbid any lenders lenders you are inquiring with to pull your credit without checking with you first.

 

[Francisco d'Anconia]

Also, you should opt out of those pre-approved credit card offers. If you want more credit, you should go after it yourself instead of waiting for offers to show up.

Here's why: To pre-approve you, they must pull your credit info every time. However, every time your credit info is pulled, it automatically drops your credit rating slightly. It's totally stupid, but it still happens anyway.

If you end up throwing those offers in the trash, (like most people do on average) you are allowing your credit rating to be perpetually lowered for no reason. The more of those offers you receive, the more this affects you.

Plus, a lot of the offers aren't that great anyway.

The same thing happens when you shop around for loans, so in that vein, you should forbid any lenders lenders you are inquiring with to pull your credit without checking with you first.

All very true!

For anyone who would like to compare apples to apples, here's a good site to start with. It's breaks down credit card deals by it's bonus options and what you would like to achieve.

http://www.creditcards.com/index.php?a_aid=1004&a_cid=1000&a_did=35890

 

[OzyBoy]

I hate credits cards, i used to have two of them but i only have one of them now only because i probably need it. I think it does build up your credit because since i got it i have had several other credit card offers and my bank offered a credit limit increase not that long ago so it can't be that bad.

 

[Bible_Belt]

Partially true. Your credit score is ticked depending on what type of inquiry is being performed. Credit cards, yes. Home mortages, you are allowed I believe 8 queries within an two month period before it effects your score.

Having a ton of cards that you don't use isn't a bad thing either when companies tally your debt ratio. For example, a person owing a total $2500 across 10 credit cards each having a $1000 credit limit has a debt ratio of 25% [2500/(10*1000)].

Compare that to a person owing a total of $2500 across 5 credit cards each having a $1000 credit limit. That person has a debt ratio of 50% [2500/(5*1000)]. The second person would be considered at higher risk.

I agree about the mortgage inquiries being lumped together. They made that change a few years ago.

But you are using 'debt ratio' in a way that is foreign to me. As a mortgage broker, the loan apps I submitted calculated debt ratio as total required monthly payments divided by gross monthly income. For example, if a client has $2,000/month in income, and the sum of their car payment and credit card monthly minimum payments was $1,000, then they had a debt ratio of 50%, which is too much to get most mortgages.

When using this version of 'debt ratio,' it does hurt a little to have several small balances on several cards instead of just a couple. The required minimum payment sum is less when it's all on one card.

What tends to screw up debt ratios the most is car payments, because cars are financed over a fairly short time, and the monthly payment tends to be high. Everyone wants a new car as soon as they get a job, but then when the want a mortgage, the large car payment messes up their debt ratios. The general guidelines I worked with were no more than 30% of gross income could be on the mortgage, and no more than 50% on all debt total. Of course, all of this is flexible if the client makes a down payment of more than 25%, but most people don't have that much cash to put down.

 

[Francisco d'Anconia]

I agree about the mortgage inquiries being lumped together. They made that change a few years ago.

But you are using 'debt ratio' in a way that is foreign to me. As a mortgage broker, the loan apps I submitted calculated debt ratio as total required monthly payments divided by gross monthly income. For example, if a client has $2,000/month in income, and the sum of their car payment and credit card monthly minimum payments was $1,000, then they had a debt ratio of 50%, which is too much to get most mortgages.

When using this version of 'debt ratio,' it does hurt a little to have several small balances on several cards instead of just a couple. The required minimum payment sum is less when it's all on one card.

What tends to screw up debt ratios the most is car payments, because cars are financed over a fairly short time, and the monthly payment tends to be high. Everyone wants a new car as soon as they get a job, but then when the want a mortgage, the large car payment messes up their debt ratios. The general guidelines I worked with were no more than 30% of gross income could be on the mortgage, and no more than 50% on all debt total. Of course, all of this is flexible if the client makes a down payment of more than 25%, but most people don't have that much cash to put down.

Absolutely true. My example is a portion of calculating debt ratio, especially when getting approved for a mortgage.

Before buying my home I was discussing my preparation with my financial planner and was going to close out several credit cards which I wasn't using. She vehemently said that I shouldn't do it because my credit availability was several times greater than my debt (including a car note).

I went along with her and kept them open and asked my mortgage broker about what he thought about it and he wholeheartedly agreed. At a time where financial institutions were becoming more diligent in qualifying mortgage applications I was easily approved for a fixed rate that was comparable to most of the adjustable rates.

 

[Vypros]

Here's why: To pre-approve you, they must pull your credit info every time. However, every time your credit info is pulled, it automatically drops your credit rating slightly. It's totally stupid, but it still happens anyway.

If you end up throwing those offers in the trash, (like most people do on average) you are allowing your credit rating to be perpetually lowered for no reason. The more of those offers you receive, the more this affects you.

That is simply not true. When these companies pre-approve you, it's what they call a "soft-pull" of your credit file. Which means that pre-approved offers don't affect your score. Also, you checking your own scores doesn't affect your score.

The only time your score is affected by a credit check is when YOU initiate it. And then, you can do as many checks as you want within a perscribed period and it will only count as 1 pull (they give you a little time to shop around for the best loan).


As for the question in the thread, you really don't want more than 3 or 4 credit cards. Plus, credit cards alone won't make for good credit. What most companies/lenders look for is a healthy MIX of credit. Your credit cards fall into what is called a "revolving" line of credit, and that plays into your score, but you also want other types of credit like loans and stuff like that.

The "ideal" mix of credit would be:

A mortgage
A car loan
A personal loan
3 to 4 credit cards
Studen loans

^All of which are NOT maxed out (meaning you still have available credit on each--i.e. if you qualify for a mortgage of a $150K, you buy a house at about $120K or less or your credit cards have some balance that you pay monthly, but they are not maxed out).

These different types of loans make up a "mix" of credit and to a lender looks very good when you keep them all current. I'm not saying you need to go out and run yourself into debt, I'm just saying that credit cards alone aren't building your credit any faster if you have 6 than if you have 3.

 

[Throttle]

vypros is dead on, ignore stuff above that contradicts him.

to clarify his point, your "mix" of loans doesn't affect your credit score directly, but any lender that pulls a credit report on you can see ever current (and many past) loans & credit cards, and they do consider the mix before they extend credit, especially for mortgages and other big ticket items.

make sure you hold on to your oldest account (especially if it's a no-fee credit card) -- they look for how long your oldest account has been open in determining your credit score. if you've opened a bunch of extra accounts recently, consider nixing them, but each closed account affects your debt:limit ratio, which generally will lower your credit score.

page is also misleading when talking about shopping around. you should be careful about letting anyone pull a report until you're sure you're going to take a loan from somebody, but if all the inquiries are within a month or so, and they're all for the same type of credit (car loan, student loan, mortgage) shopping around doesn't hurt you. BUT this is not true for credit cards -- each inquiry hurts. the justification? most people only buy one house or car at a time, but they happily pile up many credit cards at once (and such people are a terrible risk for lenders).

careful with telemarketers & credit card tables w/ free giveaways. though it is both illegal & unethical, they will sometimes mislead you into thinking they're just "sending out some information"... if you give your social security number, they're probably planning on pulling a report on you.

 

[Bonhomme]

Having a ton of cards that you don't use isn't a bad thing either when companies tally your debt ratio. For example, a person owing a total $2500 across 10 credit cards each having a $1000 credit limit has a debt ratio of 25% [2500/(10*1000)].

Compare that to a person owing a total of $2500 across 5 credit cards each having a $1000 credit limit. That person has a debt ratio of 50% [2500/(5*1000)]. The second person would be considered at higher risk.

Let us not forget the total amount of revolving personal credit you have (regardless of balances) counts against you, too. The more revolving credit, the worse your score, even if you have no balances on any of them.

Having a ton of cards definitely is bad as far as credit scoring goes. And the scoring models make no distinction if one runs up $20,000 of charges at the mall or casino or uses them to buy a house you can sell in 2 weeks for $30,000 as-is.

It's very very difficult to get over $40,000 in personal unsecured credit, such as credit cards.

 

[Francisco d'Anconia]

Let us not forget the total amount of revolving personal credit you have (regardless of balances) counts against you, too. The more revolving credit, the worse your score, even if you have no balances on any of them. ...

Not true in my case. My mortgage broker let me know that not too many people have enough available credit to buy their home on a credit card. He said that it made it easy for me to get a mortgage at a below average rate. This even though I had just made a major purchase (a car) a month or so before.

I still say it's not the about of credit you have, it's what you do with it. How are people able to buy multi-million dollar parcels of real estate without showing that they already have several sources or credit which feel comfortable extending them credit? Without establishing your credit worthiness you will usually have difficulty obtaining financing.

 

[Throttle]

Let us not forget the total amount of revolving personal credit you have (regardless of balances) counts against you, too. The more revolving credit, the worse your score, even if you have no balances on any of them.

Having a ton of cards definitely is bad as far as credit scoring goes. And the scoring models make no distinction if one runs up $20,000 of charges at the mall or casino or uses them to buy a house you can sell in 2 weeks for $30,000 as-is.

Neither of these assertions is true and repeating them is irresponsible.

The small kernal of truth that is being monumentally distorted is that lenders can see how much credit you have available to you & of what types. But Fair Isaac's credit scores (the folks who invented this stuff) do not include that in determining your score. Lenders may consider the amount of credit available to you and weigh that against your reported income before lending to you. But it is not a part of your credit score.

Bonhomme, you are reporting a common myth. Go to Fair Isaac's website, look it up and learn.

 

[Bonhomme]

What’s In Your Score ....

.....Types of Credit Used

* Number of (presence, prevalence, and recent information on) various types of accounts (credit cards, retail accounts, installment loans, mortgage, consumer finance accounts, etc.)

Please note that:

* A score takes into consideration all these categories of information, not just one or two.
No one piece of information or factor alone will determine your score.
* The importance of any factor depends on the overall information in your credit report.
For some people, a given factor may be more important than for someone else with a different credit history. In addition, as the information in your credit report changes, so does the importance of any factor in determining your score. Thus, it's impossible to say exactly how important any single factor is in determining your score - even the levels of importance shown here are for the general population, and will be different for different credit profiles. What's important is the mix of information, which varies from person to person, and for any one person over time.
* Your FICO score only looks at information in your credit report.
However, lenders look at many things when making a credit decision including your income, how long you have worked at your present job and the kind of credit you are requesting.

....Don't open a number of new credit cards that you don't need, just to increase your available credit.
This approach could backfire and actually lower score.

This was copied and pasted straight from the Fair Isaac web site (with my emphasis). See: http://www.myfico.com/CreditEducation/WhatsInYourScore.aspx

Yes, having more available credit is better if you have the same balance, especially if your ratio of debt to available credit is high. If the ratio's low, having more credit will not help your score, and establishing too many new accounts may lower it.

Could you explain how the scoring model distinguishes between the same balance to available credit ratios for equal cash advances taken to buy a house way below market or blown at a casino, Throttle?

I still say it's not the about of credit you have, it's what you do with it. How are people able to buy multi-million dollar parcels of real estate without showing that they already have several sources or credit which feel comfortable extending them credit?

That's obvious, Francisco. Lenders, especially when they're dealing with huge sums of money, look beyond the score. But the scoring model itself is "dumb": it has no component to account for one's assets or their liquidity.

The practical point I'm making is that your score doesn't improve by having more revolving credit in and of itself, and it's anything but easy to get tens of thousands of unsecured credit at the snap of a finger just by maintaining low balances and a good payment history.

It can obviously be a very powerful investment tool if you go about it right. But the more you get, and the faster you try to get it, the harder it is to get more... even if you're a multimillionaire like an acquaintance of mine who has not a single late payment, but could hardly get more in credit card lines than most people who have good credit and a moderate income.

 

[Throttle]

key quotes:

Don't open a number of new credit cards that you don't need, just to increase your available credit. This approach could backfire and actually lower score.

because it lowers the average age of your accounts, and also adds to the number of recent inquiries. lots of brand new small accounts are just as bad as lots of brand new large accounts, and credit line increases that involve a credit inquiry have that strike against them. but the amount of credit overall doesn't factor into the score.

Could you explain how the scoring model distinguishes between the same balance to available credit ratios for equal cash advances taken to buy a house way below market or blown at a casino, Throttle?

it doesn't, it can't. and i never said it does. but lenders can distinguish between different types of accounts, and lots of mortgage debt is nearly always better than the equivalent amount of credit card debt.

 

[Throttle]

It's very very difficult to get over $40,000 in personal unsecured credit, such as credit cards.

difficult for whom? I know lots of people with that much in credit card limits available to them. now, all of them have higher annual income than that, but that's not exactly an upper bound these days even for middle class Americans...

i once had $20k in credit card limits (4 cards) with an annual income not much more than half that, and it never hurt my credit score, since all the accounts had significant age on them & all balances were paid off the same month. Discover used to raise my credit line by $300-1000 every 12 months or so, back when I was using their card regularly. Multiply that across 4 accounts and its easy to see how I went from $2k to $20k in limits in less than 10 years.

Credit card companies are hoping you don't do something stupid, and their own statistics convince them that it's a risk worth taking.

 

[Skilla_Staz]

Personally, I'm getting ONE credit card. Only one. If all goes well, I'll only be using it to charge stuff that I've already got the money for. That way, when the bill comes. Bam. Paid off well before the due date.


Best way to get improved credit. Pay things off BEFORE they're due, IN FULL.

The more CC's you have, the more temptation there is to use them all. Plus, if you've got 6 of them, whos to say you'll notice is somebody such as myself swipes one?