Building a solid credit score is one of the most important steps in achieving financial freedom. Whether you’re looking to buy a home, finance a car, or simply improve your financial standing, a healthy credit report plays a critical role. But how do you actually build your credit? One of the most effective ways is by responsibly managing at least two open credit cards. In this blog, we’ll discuss why having multiple credit cards is essential for building credit, the importance of credit card issuer limits, and what credit card churning is—and why you should avoid it.
Why Having At Least Two Credit Cards is Crucial for Building Credit
You may have heard that you only need one credit card to build credit, but that’s not quite true. Having at least two open credit cards can be a game-changer for your credit score. Here’s why:
1. Credit Utilization
Credit utilization is the ratio of your credit card balances to your available credit. It’s one of the most important factors that affects your credit score. If you only have one credit card and you carry a balance, your credit utilization ratio will be high, which can hurt your score.
However, with two open cards, you can spread your spending across both accounts, helping keep your credit utilization lower. For example, if you have a $5,000 limit on each card and you spend $2,000 on both, your utilization is only 20%. A lower ratio signals to lenders that you’re using credit responsibly, which can boost your score.
2. Payment History
Your payment history is the largest factor in determining your credit score. By having two cards, you have more opportunities to demonstrate that you can manage multiple credit accounts and make timely payments. Having a good track record of on-time payments across more than one credit card shows lenders you’re a responsible borrower.
3. Diverse Credit Mix
Lenders like to see that you can manage different types of credit accounts. With two credit cards, you’re diversifying your credit mix, which is another factor that can improve your score. A mix of credit accounts, such as credit cards, installment loans, and mortgages, can help show lenders that you’re capable of handling various forms of debt.
Credit Card Issuer Limits on New Card Approvals
While having multiple credit cards is important, it’s equally essential to understand the rules and restrictions that issuers place on new credit card approvals. Issuers set these limits to prevent cardholders from applying for too many cards too quickly (which could negatively impact their credit score).
Here are some of the most important credit card issuer restrictions to know:
- American Express: Max of 5 cards, with no more than 2 cards approved in a 90-day period.
- Bank of America: 2 cards in 30 days, 3 cards in 12 months, 4 cards in 24 months.
- Capital One: 1 new card every 6 months, max of 5 prime cards or 2 starter cards.
- Chase: 5/24 rule—if you’ve opened 5+ cards in the past 24 months, no new Chase cards.
- Citi: 1 card every 8 days, 2 cards within a 65-day window, 1 business card every 90 days.
- Discover: 1 new card per year, max of 2 cards.
- Wells Fargo: Must wait 6 months before applying for another card.
These limits are in place to prevent credit card churning (more on that below), protect cardholders from over-extending themselves, and ensure the credit issuers are offering cards to financially responsible individuals.
What is Credit Card Churning?
Credit card churning refers to the practice of opening multiple credit cards in a short period to take advantage of sign-up bonuses, rewards, or other perks, then closing the cards before the annual fee is due or once the bonuses are collected.
While churning can help you earn rewards quickly, it has several downsides:
1. Hard Inquiries Can Damage Your Credit Score
Every time you apply for a new credit card, a hard inquiry is made on your credit report. Multiple hard inquiries in a short time can lower your credit score, especially if your credit history is still developing.
2. Increased Credit Utilization
If you’re opening multiple cards and using them to rack up rewards, your credit utilization may spike, which could hurt your credit score if you’re carrying balances on those cards.
3. Shorter Average Account Age
Closing cards frequently can reduce the average age of your credit accounts, which is another factor that can negatively impact your score. Lenders like to see that you’ve had credit for a long time and have experience managing accounts.
4. Risk of Rejection
Credit card issuers are aware of churning, and some, like Chase, implement rules (like the 5/24 rule) to limit card approvals for applicants who have opened too many cards in a short time. This could make it harder to get approved for cards in the future.
The Bottom Line: Balance Is Key
While having multiple credit cards is a smart way to build credit, it’s important to strike a balance. You don’t want to apply for cards too often, as credit card churning could hurt your credit score. Instead, focus on responsibly managing your two or more cards, keeping your credit utilization low, making on-time payments, and avoiding unnecessary credit inquiries.
By understanding the credit card issuer rules and the risks of churning, you can make better decisions when it comes to building your credit and improving your financial health.
Ready to Build Your Credit?
Start by applying for two credit cards, use them responsibly, and watch your credit score grow! Stay consistent, be mindful of hard inquiries, and avoid churning to keep your credit in top shape.