Should I Have Multiple Credit Cards?

Some people overspend and accrue considerable credit card debt that they attempt to mitigate with more credit cards. Although it is true that multiple credit cards can help you to make debt repayments, this doesn’t deal with the root causes of the problem. There is no simple answer to the question posed in the title of this article because everyone has different financial circumstances. That said, there are certain advantages to having more than one credit card and this may even help or perhaps hinder a credit score depending on how the cards are managed. 

What are the Advantages of Having Multiple Credit Cards?

If you have multiple credit cards, you have more spending power and greater opportunities to earn cash back, points and other rewards. But the credit score effects should be your primary concern if you’re considering having access to multiple credit cards. Having more than one credit card could improve your credit score because the credit utilization ratio may be low. 

For example: imagine that you have a single credit card, the credit limit is $2,000 and you tend to charge around $1,800 per month to that card. This would set the credit utilization ratio, which is the amount of available credit, at 90%. However, if you have two credit card with a combined credit limit of $4,000 and you spend the same $1,700, your credit utilization would drop to 45%. When it comes to credit scores, it’s important to understand that a high credit utilization ratio will have a negative impact on your credit score. This seems unfair, if you’re using a single credit card and paying it off in full every month, should you really be penalized for using the majority of your credit limit? Unfortunately, that’s how the credit scoring system works and this is why many people opt for more than one credit card to game the system.

How Many Credit Cards Do I Need?

There are no hard and fast rules, everyone has a different financial situation. But, there is a strong argument to be made for at least one additional credit card for security, convenience and to gain access to other benefits. An extra credit line can be useful to leverage everyday purchased into rewards, such as points, cashback and airline miles. Some people use their extra credit card to accommodate their discretionary budget, but there are potential drawbacks.

What are the Potential Problems?

There are three main problems when you’re using multiple credit cards. They are:

• Hard Inquiries: When you apply for credit a hard inquiry is initiated which can alter your credit score by a few points. This is usually a small and temporary effect, but multiple credit card applications within a short period of time is problematic. This type of activity can be perceived as a potential credit risk and the hard inquiries can add up quickly. It’s a good idea to limit yourself to one credit card application every six months. This will prevent the accumulation of multiple hard inquiries over the short-term that could affect your credit score.

• Big Future Purchases: If you’re planning to purchase a home or a big ticket item it’s important to use timing to your advantage. A credit card application at the wrong time can alter your credit score negatively, but those lost points tend to return within six months. This time frame should be kept in mind and you should hold off on any credit card applications until your credit score has bounced back.

• Managing Billing Cycles: Every new credit card that you have brings with it a set of due date and credit cycles that must be managed and tracked. The simplest solution is to automate the monthly payments and/or set them all to the same day. Ideally this will align with your paydays to ensure that your bank account balance is ready to make the payments. 

3 Tips to Manage Multiple Credit Cards

Let’s take a look at three useful tips that can help you manage the potential of multiple credit cards without compromising your credit score:

1.Match the Credit Card to the Purchases

The most obvious application of this approach is a store-branded credit card. These types of card can typically be used in a specific chain of stores or on the website. It’s well worth some research to see if this kind of credit card will meet your needs. This is especially true if you open a store credit card that offers discounts on purchases. If this is a store that you would be shopping at anyway it’s a no brainer. The savings can add up if you’re making multiple purchases at the same time, such as vacations, holidays, back-to.school and more. Those that are planning to buy and furnish a new home can save a lot on big ticket items, including appliances, furniture and more. The best way to use a store credit card is to make the purchase and immediately pay it off to get a discount. In certain cases, you may even decide to close the card shortly after you’ve bought everything you need. 

2.Maximize Your Rewards

If you have multiple credit cards, you can earn the best possible rewards from an array of different sources. Perhaps you have a card that offers 5% cashback in specific categories at certain times of the year. The amount of purchases may be capped, but with some planning you could switch to that card until the cash back offer ends. A second card may offer 2% back on gas only at certain times and this can be used when the other card isn’t in use or if it cannot be used to purchase gas. Certain credit cards have a flat 1% cash back on every purchase and this would be likely to be your default card. The rewards are lower, but they can be used when other rewards are not applicable. 

3.Keep Things Manageable

It can be a challenge to manage too many credit card accounts at the same time. There is always the risk that you can miss a reward offer or a credit card bill that could derail your saving plans. Start with one card and add others as needed and soon you will find a threshold that you can handle and pay the balances in full on the due dates. It’s a great idea to set the payment dates on the same day and this should be when you’re paid. Then there will always be sufficient funds in the account to make the payments.