How does the number of credit cards affect credit score?

lis1320

I have had an Aqua credit card for the last 3 years to build my credit score, always using less than half the credit limit and paying it off before the month's end. 
ClearScore suggests the only thing I can do to increase my credit score is to increase my credit limit - I currently have £1,150 with Aqua.
I want to apply for a Barclaycard in hopes of a higher credit limit, but I'm not sure when the credit limit will increase. I'm looking to buy my first property next year with my partner so would like to boost my credit score as much as possible in the next 12 months.

Should I keep my Aqua and apply for a Barclaycard, or cancel the Aqua in that case? Would having 2 credit cards be seen as negative to lenders or positive, because my overall credit limit would be higher?

coachman12

It all depends on your credit history (score is unimportant) ---- if history is very good ( check with the credit ref agencies), then number of credit cards is not a huge advantage nor disadvantage; it's what you've done with credit cards and other loans etc in the past. If you get more credit cards ( and I would recommend keeping the Aqua and applying for another card, not necessarily Barclaycard)  just use them once every couple of months and make sure you pay off balance at once.
The more important aspect for you to consider is how to save, save , save to make sure you have the optimum amount for mortgage deposit. The very best of luck to you.

kimwp

I think Clear score might be telling you that increasing your credit limit will improve your score because the score is related to the proportion of your available credit that you use (utilisation rate). So you might be able to achieve the same by simply spending less on your credit card.  There are many websites that recommend a utilisation rate of less than 30% for a good score or even 10% for an exceptional score, so your current 50% is quite high. (Just a thought)
Having said that, having loads of credit available to you isn't great for a mortgage application, the lenders will then be concerned that you'll spiral into lots of debt. 
As coachman12 said, the key thing is a credit history which shows a likely future responsible use of credit.
Have you asked Aqua to increase the limit on your current card?

lis1320

I just checked my credit history thanks to your advice coachman12 - I didn't even know this was an option! Thought all I could do is see my credit score. Credit history looks fine in my (untrained) eyes. No payments missed, on the electoral roll, the usual. Maybe I don't need to worry about getting more credit cards then. I am very much focusing on savings at the moment!

kimwp, I usually spend 20% of my credit limit monthly for a couple of food shops but there was one time a few months ago when it was almost 50%. Interesting to hear that less than 10% utilisation is best. For some reason I though if I only spend ~£100 on a credit card then lenders will not think this a significant enough proof of me being able to handle a big debt. Will definitely start using less than 10% now, since I don't really have a need for using the credit card in the first place other than building up my credit history.

Thank you both for your advice.

[Deleted User]

Utilisation isn't an issue when you're clearing in full, so don't worry about limiting your spend 

kimwp

Deleted_User said:

Utilisation isn't an issue when you're clearing in full, so don't worry about limiting your spend 

Various sites state the utilisation rate is the amount you spend vs the total credit available, I can't find any guidance regarding clearing in full having an effect on the rate. Can you signpost where that information is from please? I'd be interested to know more.

kimwp

@Liz1230, I don't know if the amount you spend has any impact on whether the banks think you can manage large amounts of debt. (Not to say it doesn't, just that I don't know). I think unlikely though, I don't think I was spending much more than that when I got my mortgage 6-ish years ago. 

[Deleted User]

kimwp said:

Deleted_User said:

Utilisation isn't an issue when you're clearing in full, so don't worry about limiting your spend 

Various sites state the utilisation rate is the amount you spend vs the total credit available, I can't find any guidance regarding clearing in full having an effect on the rate. Can you signpost where that information is from please? I'd be interested to know more.

It's from a couple of decades of industry experience with a number of major lenders.

Utilisation, as it relates to risk, is an indicator of your  level of reliance upon credit and the amount you revolve. That's what gets factored into risk algorithms. Clearing in full shows you're not reliant so utilisation is disregarded.

kimwp

Deleted_User said:

Utilisation, as it relates to risk, is an indicator of your  level of reliance upon credit and the amount you revolve. That's what gets factored into risk algorithms. Clearing in full shows you're not reliant so utilisation is disregarded.

Does this apply to the mortgage assessment (which admittedly is the key question) as opposed to the credit score (which is what I was talking about, and not part of the mortgage assessment, so admittedly not so useful information)?

[Deleted User]

Yes, it applies to nearly all credit decisioning.  The credit score is entirely irrelevant as it uses different and unhelpful criteria, which is why people tend to make poor decisions in an effort to change it.  

Experian tend to view all credit activity as bad, whereas the others are slightly more advanced in their thinking in that regard.

kimwp

Useful to know, thank you.
Do you have any advice whether the amount spent (as a standalone quantity as opposed to a proportion of credit available) on the credit card each month factors in to a mortgage decision? Is it possible that the amount could be too small as Liz1230 was concerned about?