I am building up my credit score with two modest credit cards. One of them is offering me another credit card with a higher limit. I don't know if it will help or hurt my credit score. Let's assume that I continue making payments more than the minimum and always on time like I have been for over a year now. Should I accept the new card?
The following is the opinion of the folks at Experian:
Should You Open Credit Cards to Improve Your Credit Utilization Rate?
You can manage your credit utilization ratio in several ways, including:
- Paying credit card balances in full every month. Remember that even if you're not able to get completely 'back to zero' each month, keeping your balances as low as possible is still helping you move the right direction and avoid racking up excessive debt.
- Keeping open credit accounts that have zero balances, even if you don't intend to use them.
- Requesting a credit limit increase from a credit card issuer.
- Opening new credit accounts.
This last option, however, has the potential to negatively affect your score in the short term. Credit scoring models also consider the number of times new creditors — such as a new credit card company — have looked at your credit report within a certain time frame. Too many inquiries in a short period of time can influence your credit scores. In addition, having too many credit cards compared to your overall credit mix may also be a risk factor and could negatively impact your credit scores. You know yourself best, and if having open cards with high limits could prove too tempting for you to overspend, carefully consider the right number of accounts for you based on your personal strengths and financial abilities.
It’s not an obvious answer. Having more credit available if helpful if you don’t use it—if you have $2000 debt against a $10,000 limit (20% credit use) it looks better than borrowing $2000 against a $5000 limit (40% usage). But if you use your new limit, your score will go down. Your score will also take a hit temporarily just for opening a new account.