Chris Bridges, Founder and CEO, VITAL Card Inc.,
Is having more than one credit card a smart idea? Is there a magical number of credit cards one should have to improve their credit score? How many credit cards is too many credit cards? We answer all these questions and more in this article.
Having multiple credit cards can be profitable, but it depends entirely on how well you manage them. Juggling multiple cards, although tempting, can lead you down a slippery slope. Keeping up with different billing cycles and statements can get tricky and, if you aren’t careful, quickly land you in a pile of debt.
Understanding how to use your cards to your advantage and maximize your benefits is key to making bold financial decisions. So here’s what you might want to know before evaluating whether to add more cards to your wallet.
Why Have More Than One Credit Card?
According to the Experian Consumer Credit Review 2019, the average American owns 3.84 credit card accounts.
Well, one of the most obvious reasons for a second credit card is the risk of your primary card getting declined or being compromised. It may be the case that a certain restaurant or vendor doesn’t accept or can’t connect to the network to charge your primary card and so in these cases, a second card can be handy. And don’t we all know how long it takes for a credit card company to replace your old or stolen card? While this can be a strong reason for you to get a second credit card, we strongly recommend getting a VITAL Card. We promise world-class customer service and credit score rewards.
Multiple credit cards mean you have access to multiple lines of credit and multiple rewards, which vary based on the types of cards and the card companies you choose. Ideally, multiple cards can also help you maintain a better credit score because they can enable you to keep a low credit utilization ratio.
Credit utilization ratio, simply put, is the percentage of the total credit available to you that you are currently utilizing. Credit reporting agencies use this ratio as one of the main factors to calculate your credit score.
Why Is Your Credit Score Important?
Your credit score is a three-digit number that indicates your likelihood of repaying a loan. Not only can it affect whether you are lent money, but it also determines the rate at which you are lent the money. The higher your credit score is, the better it reflects on your credit history.
Credit scores can also determine the premium that insurance companies charge you. Essentially, a good credit score can help you purchase insurance at a lower premium, saving you a lot of money in the long run.
On the other hand, a low credit score can impact employment opportunities. As a new practice, employers may now check your credit score to assess your level of responsibility.
So, maintaining a good credit score is something you may want to keep in mind when making financial decisions, such as how many credit cards to have.
How Do Credit Cards Affect Your Score?
The number of cards you own and how you choose to use each of them plays a role in how high or low your credit score is. Several factors come into play here, including:
- Your payment history, which counts for 35% of your credit score. It records your payment habits. For example, missed payments or defaulted loan paybacks can adversely affect your credit score.
- Credit type counts for 10% of your credit score. Card companies encourage a mix of different types of debt rather than a single type. Having varied credit, such as auto loans, home loans, etc., can strengthen your credit score.
- New credit accounts count for 10% of your credit score. It reflects how frequently you applied for credit or loans in the past.
- Length of history accounts for 15% of your credit score. This takes into account if you have a long history of borrowing and paying back loans on time.
- Current debt and credit utilization make up 30% of your credit score. Here we look at how much you currently owe and what percentage of your available credit you are using.
How To Use Multiple Cards To Your Advantage
To improve your credit score, experts recommend limiting yourself to a 30% utilization rate. Having multiple cards allows you to divide your expenses between a greater total amount of credit available to you across those cards. This can ensure a lower credit utilization ratio and help you maintain a good credit score. Credit utilization makes up 30% of your credit score, so simply dividing your credit over more cards can go a long way for your overall credit score.
Can You Have Two Cards From The Same Credit Company?
Most card companies will gladly issue you a second card as long as you meet their qualification requirements. How well you are managing your current credit card can determine how easily the company gives you a second one.
However, the terms for your second card will likely differ from the first. This is because the company assesses your current income and credit history when you apply.
How To Ensure A Robust Mix Of Cards?
If you have two or more cards, it may be wise to ensure they belong to different payment networks. This way, you can avoid problems if a merchant only accepts one kind of network. For example, if you have two Mastercards, it may be an issue dealing with a merchant who only accepts Visa.
Secondly, you must think about what rewards benefit you most and choose your cards based on the companies’ reward schemes. For example, if your first card rewards you with airline miles, you can look for cashback rewards on groceries with your second card.
If you travel abroad often, it may be wise to make sure at least one of your cards is accepted internationally, with a low foreign transaction fees rate.
How To Manage Multiple Cards At The Same Time
Managing multiple cards can be tricky and land you in heavy debt if you aren’t organized. Make sure to charge your cards strategically, dividing your credit amounts and types of credit across the different cards. Also, make sure to check your statements regularly to stay on top of your account balances and due dates.
As a rule of thumb, it may be wise to avoid carrying any balance on your cards because when you’re juggling multiple cards, it is easy to miss payments. Adding reminders on your phone can help keep track of your bill payment dates and note the different benefits you have available for each card.
Lastly, before applying for the second credit card, consider checking the terms and conditions on your new card.
Potential Risks of Having Multiple Cards
Each time you apply for a new card, it prompts a ‘hard inquiry,’ which can temporarily lower your current credit score to quite an extent. If you apply for multiple new credit cards within a short time period, it can display a potential credit risk to the company. The frequency could indicate that your need for additional credit stems from financial difficulties, and the hard inquiries can add up to lower your credit scores significantly. To avoid this, make sure you space out applications for new cards by at least six months.
Secondly, more credit cards typically equals more available credit, and in turn, more debt you can acquire. So if you’re prone to overspending, it might be better to own fewer credit cards or switch to using your debit card.
Lastly, keeping up with multiple billing cycles can get confusing. So it can be wise to check and ensure you pay off balances on time.
When To Apply For A New Card?
If you need a better interest rate to pay off your existing credit card debt and want to utilize the balance transfer APR (which can be as low as 0%), applying for a new card might be the way to go.
If you know you have a huge expense coming up, you may want to apply for your new card before making the purchase rather than after. This way, your application be will likely be free of this large credited amount and you can also take advantage of a potential sign-up bonus. For example, some companies offer limited-time schemes, like $100 cashback if you spend $500 within the first three months of issuing your new card. So simply timing your card application well can be very profitable for you.
Looking For A New Card Company?
There is no single right or wrong answer to how many cards you should have; no magical number here. It can be very tempting to collect cards and have a whole variety of benefits at your disposal; however, it’s VITAL to consider your actual need for credit and your ability to manage it well.
If you’re looking for a company that gives you competitive interest rates in addition to providing benefits best suited for you, sign up for early access to VITAL! We are a credit card company that offers world-class customer service and unique credit rewards with no annual fee.
Credit Reports and Scores | USA.gov
VITAL Card blog posts are intended for informational purposes only and should not be considered financial or any other type of advice.