If you’re not keen on having multiple credit cards, that’s understandable. It’s more to manage, and there’s more risk of overspending and going into debt.
But there are some big advantages to getting more than one credit card. It keeps you safer, it could help you save money, and it could even be good for your credit score. Even if you want to be careful about how many credit cards you open, here’s why it makes sense to have at least two of them.
1. As a backup plan
It’s one of the classic awkward situations: You’re out to dinner, and the server tells you that your credit card was declined. It once happened to President Barack Obama, so it’s safe to say that it can happen to anyone.
This is often because of the fraud detection systems that credit card companies use. They flag something in your account and temporarily lock your card to protect themselves and you. If you only have one credit card, and it’s not working, that puts you in a tricky situation when you need to pay a bill.
It’s always smart to have a backup plan — in this case, another credit card you can use. If your main credit card gets lost, stolen, or is getting declined for any reason, you can pay with your backup card instead.
2. To earn more rewards
Rewards are one of the most valuable credit card perks. Just for paying with your credit card, you could earn cash back or travel points on purchases. Many of these rewards cards also have sign-up bonuses worth $200 or more that you can earn as a new cardholder.
Getting multiple cards is one of the best ways to earn more rewards and save more money. For example, if you’re interested in cash back credit cards, you could get one that earns 2% on your purchases. If you spend $30,000 per year on it, you’d earn $600 in cash back.
But let’s say you spend quite a bit on groceries and gas. Instead of using the same card, you could get one that earns bonus cash back in those two areas. Some cards earn 3% to as high as 6% back in bonus categories. On $10,000 in gas and grocery spending, you could earn another $300 or more. And by opening another card, you also have the opportunity to earn another sign-up bonus.
3. To have more credit and improve your credit score
When you’re approved for a credit card, you’re approved for a line of credit up to the limit set by the card issuer. The amount of credit you’re using is your credit utilization, and it has a large impact on your credit score.
Here’s how it works. Every month, your card issuers report the balances and credit limits on your credit cards. Your total balances are divided by your credit limits to determine your credit utilization ratio. As a general rule, your credit score will start to suffer as you go over 30% credit utilization.
Imagine you have one credit card with a $2,500 balance and a $5,000 limit. Your credit utilization would be 50%, which would hurt your credit score. If you get another card with a $5,000 limit, your credit utilization would drop to 25%, and your credit score would improve. As long as you don’t spend more, having another credit card can be good for your credit score.
How to manage multiple credit cards
Some people think that it’s risky to have multiple credit cards because of how easily you can end up in debt. But it’s not about the number of credit cards you have. It’s how you manage them. You can go into debt with one card or stay out of debt with 10.
No matter how many credit cards you have, don’t spend more just because you can. Treat them like a debit card. Only make a purchase if you can afford to pay for it with money you have in the bank. And when your credit card payment is due, always pay the full statement balance. If you do that, you’ll stay out of debt, and you won’t be charged any interest.