FICO - Pros / Cons of adding another CC

[spongebob_squarepants]

I've got two credit cards which get paid in full monthly, limit total is $20k. I have a good FICO in the mid-700's.

Beyond that, I only have 3 other lines of credit - Car payment (will be paid off in 6 mos), Mortgage, and an overdraft credit line on my checking that shows up on a credit report.

I have read that most people with good credit scores have more credit cards, like 5+...

So, in terms of building a better FICO, I'm weighing adding a third CC.

But I know that initially, a new CC drops your score, because of the hard credit check, and the fact that the average age of your open credit lines drops with the new card.

Bottom line here - I'm buying / leasing a new car in 5 or 6 months. I'm wondering if the benefit of the add'l credit line to my FICO will offset the negative impact of the new credit line for aforementioned reasons.

[mesuky22]

I believe the more credit cards you have the lower your credit score, because you have more available debt. Your credit score benefits the most from large payments. I have one credit card that i regularly make payments of 5-10K too since my wife can spend!
try to spend more on one of credit card, don't use a debit card, pay your bills with one credit card and then pay the balance off in one shot.

[ChrisMD]

Bottom line here - I'm buying / leasing a new car in 5 or 6 months. I'm wondering if the benefit of the add'l credit line to my FICO will offset the negative impact of the new credit line for aforementioned reasons.

You're already in the mid 7s. It probably won't matter either way.

I believe the more credit cards you have the lower your credit score, because you have more available debt.

Incorrect. What you're referring to is sometimes called "potential debt" (the debt that you COULD accumulate quickly because it's available in credit you already have) but potential debt is completely irrelevant to your FICO scores.

What is relevant to your FICO scores is the percentage of your credit limits that you are using. For example, if all your cards carry a total of $30,000 in limits and a total balance of $20,000 (66% utilization), that's not good. In this case, opening another card could actually help you by lowering your total utilization. For example, you open a new card with a $0 balance and $10,000 limit, you now have $20,000 balance against $40,000 limits (50%), which is still not great but it's better than 66%.

Your credit score benefits the most from large payments.

Incorrect. The amount of the payment is also irrelevant as long as it is at least equal to the minimum due. Of course it's better for you to pay the balance in full, but whether you pay the minimum, half the balance, a full $1,000 balance, or a full $50,000 balance does not matter to your FICO scores. The only things about the payment that matter are that you paid at least the minimum and that you paid on time.

[spongebob_squarepants]

Thanks Chris.

My existing auto loan pays off in 12 months. I could pay it off in 4 months and then apply for the new car loan (I thought I'd look better on paper with less debt), but I've read that paying off a car loan early lowers your FICO. Does it matter either way?

Also, my current auto loan is my only auto loan. If I pay it off, will my FICO take a hit because my "credit mix" doesn't look as good? The Credit Karma website mentions this.

[ChrisMD]

Oh, I already responded to your PM.

[blue70beetle]

I have read that most people with good credit scores have more credit cards, like 5+...

I'm not sure if that's true or not, but if you want anecdotal evidence to the contrary, my wife and I are both high 700s to low 800s, and we have four credit cards between the two of us. Two in my name and two in hers, if it matters. Out of those, each of us has a "normal" CC with a limit around $15-20k and a store card (Kohl's and Macy's) with a substantially lower limit.

I wouldn't expect that simply having more CCs would improve your score; paying more accounts on time would be the only benefit. But I'm not an expert...

[mesuky22]

Well... don't listen to my advice, but good to learn something new today.

[ChrisMD]

I wouldn't expect that simply having more CCs would improve your score; paying more accounts on time would be the only benefit. But I'm not an expert...

That's basically correct. Having more cards CAN help your credit because it's more opportunities to demonstrate that you are responsible with credit but you also don't NEED a lot of cards to have good credit. You can have good credit with just one or two cards; however, if you are actively trying to improve credit, it might take a little longer to get to where you want to be.

[hugoaswho]

There are people that churn CC's like nothing people open up cards to get the bonuses such as miles, points or cash. People have perfect credit scores and still do this, it's one of the bonuses of having good credit is being able to take advantage of perks like high mileage cards and bonuses..

I have 3 cards I use regularly

Chase freedom for the 5%cash back since 2007
Citi thank you prefered card since 2003
Chase United Explorer Visa Signature card just opened got 58k miles for free (like free ticket to europe)

overall I pay off the last statement balance in full each month

my credit score is 780+

[dunhamjr]

i agree with all the chris said.

I have read that most people with good credit scores have more credit cards, like 5+...

on this specifically i agree with what all have said as well.
people with good credit happen to have more accounts, good credit was not gained directly just by opening the accounts.

both my wife and i happen to have lots of accounts. more then either of us actually need. but we carry no CC debt on any of the cards.

as a result of years of making changes to lower overall interest paid, while rebuilding credit and maintaining good scores... i have acquired a number of cards. for good or bad that is the situation.

i am sure that other people with a larger number of accounts went about it in a similar fashion. adding cards to get better rates, while not closing older accounts to allow for a longer documented account history.

for both my wife and i, all of our scores approached or beat 800 last time i checked.

edit:
my wife has two cards she uses for monthly purchases and pays both off each month.
i have 1 card i use for all my monthly purchases that i pay off each month.
i have one card i auto-charge the sunday paper to $15.75 paid off each month. (only done to keep the card active)
i have one card i auto-charge a charity donation to that is paid off each month. (only done to keep the card active)