How Many Credit Accounts Should I Have?
Many people ask me, “How many credit account should I have?” I could give you a “Well, it depends…” kind of answer, but you are reading this looking for real answers and advice, so I’m going to boldly give you an answer. I don’t know of any scientific study that suggests that my answer is the correct one.
All I can tell you is, I’ve dealt with literally thousands of credit reports over the years, some good and some (ahem) not so good. And based on that experience, seeing reports with excellent scores vs. the kind of reports you take around the office and show your colleagues as you marvel at the way people have screwed up their credit to the point of wondering if they really did it on purpose.
So, with what I’ve seen over the years, here goes:
“You should have 5 credit accounts!”
That’s the number. If you want the very best score possible, you should have 5 accounts. And here’s the kind of accounts they should be. At least 3 of these accounts should be “revolving” credit accounts – 4 or all 5 can be revolving if you want, but at least 3 should be. If I was to paint the ideal credit profile for you, you would have:
- One car loan account (Installment-Type Account)
- One Visa card account (Revolving – Type Account)
- One American Express card (Revolving)
- One Department Store card (Revolving)
- Something else – Gas card (Revolving)? 90 day same as cash loan (Installment)? Another Department Store card (Revolving)?
At least one of the revolving accounts would have a high-credit limit over $2,000, and none of them would have a balance at the end of the month over 30% of the high-credit limit (i.e. $2,000 limit = no more than a $600 balance). Plus, at least one of the revolving accounts would have a history of being open and active for at least 24 months and 2 others would have been open at least 12 months.
Don’t Start Closing Accounts
Above is what I would consider the “ideal” profile. That’s what you’re shooting for. If you already have more accounts than this, or you have a different mix of installment vs. revolving – Do Not Start Closing Accounts! If you close a good account, you could seriously affect your credit score. Here’s a sad real-life case:
Because she had been living with all her credit accounts “maxed out” for so long, her credit score wasn’t great, so the interest rate on her refinance loan was higher than she hoped. I let her know that with those balances paid off and the fact that she always made her payments on time, that as a result of this loan she would soon have a very high credit score and we could refinance her loan again in a few months to a lower rate. I explained good use of her credit to her and when her loan was finished, I fully expected that we had solved her problem and I would be able to get her mortgage payment even lower than it was before in a few months time.
But Patty got nervous. She did not want her credit balances to get out of control again and didn’t trust herself with her credit cards. So Patty took the drastic step of cutting up all her cards, calling all her creditors, and closing all her credit accounts! Every one of them.
When I followed up with her a few months later and re-pulled her credit report, her score had dropped over 100 points since the last loan! I had expected an increase, not a big drop like this. I simply could not get her the lower interest rate at that point because, not only didn’t her score improve like we hoped, but she no longer had a good credit rating at all. She thought she was making a smart move to protect her credit, but it seriously hurt her credit instead.
“And remember, a person’s credit rating affects other things, like home owners insurance and car insurance, and could even affect your ability to change jobs in the future, too.”
Do Not Close Good Credit Accounts
So my point here is, don’t close good credit accounts. You don’t have to keep using them if you have too many accounts. Put the card in the freezer or cut it up, but don’t call and close the account. You can let it hang there in limbo with a zero balance – that’s okay. But don’t close it – especially if you want to raise your credit score or qualify for a mortgage loan soon.
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