21

I was told that having more cards and more open accounts was more of a risk factor since you have more credit to abuse. However, this seems to say otherwise that credit trackers actually encourage you open and have more accounts to show trust and have more open accounts.

Should I open more accounts with no annual fees just to have them?

Right now my credit is at 724 but I want to reach 750+ before getting a student loan.

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    How long will it be before you need a student loan? I think your main problem is you don't have a long enough history - adding more new debt won't help that. Reducing your utilization may be a quicker fix. – D Stanley May 30 '17 at 14:21
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    As a side note - i would get as little student debt as possible - work part-time, take no unnecessary classes, live at home or cheap off-campus living, etc. 50% of people that start college don't finish, and student loans are nearly impossible to get rid of short of permanent disability. – D Stanley May 30 '17 at 14:25
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    Why? What is the difference between 724 and 750? Most likely none. How does this help you? Given that there is no material difference between a 724 and 750 score, the answer to your question is a resounding NO. – Pete B. May 30 '17 at 14:29
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    @PeteB. Even a few points can make a difference if you are on the edge between one tier and another. A 26 point gap is not something to sniff at in this range. – xiaomy May 30 '17 at 14:49
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    @DStanley - this is somewhat nitpicky, but he isn't suggesting "adding more new debt". He's talking about "adding more new credit", and doing that would actually reduce the overall utilization. (Of course, so would paying down the existing debt which is actually the better option...) – TTT May 30 '17 at 16:49
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In the long run, yes. In the short term, no.

Having more accounts and higher total credit limit is a good thing. From the potential lender's perspective, someone else has apparently reviewed your profile in the past and decided that you were creditworthy.

However, building credit account numbers should be a gradual process, just like accumulating the credit history. If you apply for quite a few credit cards in a very short period of time, it would look really bad to lenders because it makes you look desperate and risky. Unless of course you don't have an immediate need for credit and would simply like to focus on building credit history along with account numbers.

In your situation, since you have a need for credit and would like to see a better score in the short term, the most effective approach is simply to reduce your credit utilization. You would notice that total account number has a low impact on your credit score, but credit utilization has a high impact. Pay off your credit card balances in full if you can, and you will see that score taking off.

EDIT: (Per @Mindwin's suggestion) here is how applying for/opening new accounts shortly before seeking approval of a new loan hurts you.

1. Multiple hard inquiries

The list in the screenshot you posted from CK website should also include another item called credit inquiries. This is the number of times you asked/allowed someone to review your full credit report in the last 24 months, which always happen in a credit application. There are some caveats in this number, but in general the higher this number is, the more times you have asked someone for credit. As mentioned above, multiple hard inquiries in a short period of time makes you look bad. (While CK listed this item as "low impact", a few hard inquiries would quickly add up.)

Your score already reflects the number of inquiries, but lenders could also look closely at your credit inquiries and decide that you are more risky than what the score would imply.

2. Recently opened accounts

I'm not sure if FICO/Vintage credit score models take into account this factor, but I know lenders would sometimes look at credit history to see how many accounts you have successfully opened recently and use it as another indicator of how aggressive you are in seeking credit in the recent past. Probably the most infamous example of this is Chase's 5/24 rule.

Both of these are negatives, more than offset the benefit you get from having a higher total credit limit and account numbers. So you want to avoid doing that before applying for loans. In the long run, these things don't matter as much, and pros outweigh cons.

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    You should mention that the short-term effects duration has to do with how long the hard pulls from those inquiries linger in your report. The very mechanism of the hard pull was designed to act like that to prevent someone from opening tons of accounts, cashing in and then defaulting. – Mindwin May 31 '17 at 12:37
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    Save a google search if you don't know: Chase's 5/24 rule is: You will not be approved for this card if you have opened 5 or more bank cards in the past 24 months – Mindwin May 31 '17 at 15:55
  • @Mindwin Thanks again. I thought about including links for that but apparently Chase doesn't have it on their website (of course...) All I can find, besides various blogs and forum posts, is this... – xiaomy May 31 '17 at 16:00
  • Of course they don't have that on their website. that is an internal rule, that leaked. – Mindwin May 31 '17 at 16:42
  • I love Money.StackExchange SOOOO MUCH. So much of wisdom everywhere! WOW. – ShellZero Aug 2 '18 at 22:07
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No, don't open more accounts just to get your number of accounts up.

It looks like this screenshot is from Credit Karma. If so, you should know that the score they give is not the score that banks typically use when giving you credit. Some of their advice is good (get your utilisation rates down, limit inquires, etc) but I would completely disregard any advice over the number of accounts you should have. I personally have 31 accounts, which Credit Karma considers excellent, but I have been told by lenders that I have too many. Credit Karma's philosophy of "more is always better" is not shared by all lenders. With that said, lenders do seem to agree that it's low impact (I've never been turned down for credit), so it's not worth worrying over too much.

Aside from the sheer number of accounts, opening new accounts can have other impacts:

  • Each account you apply for will require a credit inquiry, which will negatively affect your credit for up to two years.

  • Freshly opened accounts will bring down your average account age now, but will reduce the effects of opening new accounts in the future. (If you have five accounts that are ten years old, a new account affects the average less than if you only have one old account.)

  • More available credit means that any given balance will result in a lower utilisation rate. (A $5000 balance when you have $5000 in available credit is terrible. It's not even notable if you have $50,000 available.)

  • Spreading your balances over multiple cards instead of having one card charged up all the way might help your score.

  • You may be tempted to charge up the cards, which will put you in an even worse position than you're in now.

Any one of the above factors alone is a bigger deal than your number of accounts. If you're to open new accounts, do it only after considering all of the above. Personally, I wouldn't (and don't) even consider the number of accounts I have open. Nobody really knows what the proper number is anyway because the FICO formula is a secret. Also consider that you can get a lot of the same benefits by getting your limit raised on your current cards instead of opening new ones. Although you will probably still take a hit for the inquiry, other factors may make that worth it.

If you are looking to raise your credit score, either short term or long term, then you should focus on getting your utilisation rate down. That has a huge impact on your score, much more so than anything else that's currently negative on your report. Pay those down as fast as you possibly can, and ask if you can get a higher limit. See if you can get a tentative approval before they run a hard inquiry against your credit report. You don't want to take the hit if they are going to turn you down. If you have any cards that you competely pay off every month, pay them throughout the month so that they get reported with a lower balance. You may also be able to mitigate it by getting a new card with a high limit. Another possible option is to get someone to add you as an authorized user to one of their existing accounts, assuming you know anyone that is willing and able to do so.

In summary, forget your number of accounts and focus on lowering your utilisation rate.

5

Have you clicked on "See details" by Total Accounts? I would guess that it tells you that you have too many accounts, not too few.

The biggest impact according to that chart is your credit utilization. Getting that down to around 15 - 25% would probably help a bit, especially if you can do that on every account individually and not just your total utilization.

The age of your oldest account is also an important factor, but there isn't anything you can do about that other than wait. You do have a lot of accounts considering your oldest account is relatively new, and that could be a bit of a concern, but 724 is still a good credit rating.

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    The pictured chart is from Credit Karma, they mark any number up to 10 accounts as red, and anything 11 and above as green, it doesn't seem to be particularly scientific. Regarding the age of accounts - that number is the average of all reported accounts, not the oldest. OP could feasibly have six accounts at 2m and one account at 13y7m and still come out with that average. Your point on utilization is spot on. – CactusCake May 30 '17 at 15:06
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    @CactusCake Ah, I didn't notice the word average on the side there and I'm not familiar with Credit Karma. Thanks for the clarifications. – Paulpro May 30 '17 at 15:20
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The number of accounts has a 'low' impact per your report, the main benefit of opening new accounts would be that it decreases your credit utilization, which does have a big impact on your score.

Even if you're disciplined about using your new credit cards, additional accounts may have to be used once in a while to avoid having them closed, so you'll have to keep track of what you owe each month on each account. You'll also want to check on them with some frequency to keep an eye out for fraudulent charges. Additionally, you might feel obligated to keep those accounts open in perpetuity, since closing them would hurt your score again (depending on utilization at the time). Those things aren't necessarily a big hassle, but if they have no real benefit then it's not worth bothering with.

Rather than opening more accounts, you could ask for a limit increase on your current accounts, and focus on paying down what you already have. Credit utilization fluctuates a lot because it's utilization at a point in time, so if you have high utilization but most of it is on your credit card that you pay off each month, then your score will be significantly higher a few days after you pay it off, and if checked over the month it will drop down gradually as you increase the balance.

While 750 is typically considered the dividing line between 'good' and 'excellent' credit, it would only matter for student loan purposes if you were trying to take out private student loans (and even then, could be no impact given the slight difference). If you're getting a Stafford, Perkins, or PLUS federal student loan, you won't get a better rate by having a better score.

1

I've been profiting to a modest extent by taking advantage of 0% no-fee balance transfer and 0% no-fee purchase card offers for a long time now. Basically, use a 0% no-fee purchase card to buy everything until the month before the deal runs out. Put the money you have spent in an interest-bearing savings account. Worst case, you will then pay off the card in full and pocket the interest.

Best case, you will apply for a 0% no-fee balance transfer card, and be accepted, and transfer that balance, and keep earning interest on the savings, and start to pay the spending card in full every month. Then a few months down the line, apply for another 0% no-fee spending card. If accepted, switch all your spending onto that new card, and (important) close the old spending card which you no longer need. Further down the line you'll want to "consolidate" two or more 0% balance transfer card debts onto a single 0% balance transfer card and then close the cards on which you no longer owe anything ....

That important bit, because a few years down the road you may want to apply for another "introductory" 0% deal from the same card company, and you can't do that if you already have one of their cards no longer in use. I don't know for how long they remember that you once had one and closed it and turn you down because of that, but it hasn't happened to me yet!

Never missing a payment and occasionally paying off a card in full and then closing it seems to make you look like a good customer to the card companies. The other important thing (I'm told) is that if ever you are turned down, do not make another application for a good few months. If you make several applications in too short a space of time you look "desperate" and won't be offered the good deals. It's proverbial: a bank never lends money to anybody who looks as if he needs it! (I haven't yet found out how large a debt makes me look as if I do need it).

These 0% deals will doubtless disappear if/when interest rates rise. On the other hand, if you can borrow at a low percentage APR and save at a significantly higher rate (net of taxes), it could still be worth doing. And of course, there's always the possibility that you actually need to borrow, in which case a good credit rating is useful.

The most important bit, of course, is to put every penny you spend into that savings account, every month, so you do not become the sucker who cannot clear the debt when the 0% deals go away!

protected by Chris W. Rea Sep 18 '17 at 0:44

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