Getting an extra credit card can often seem like a natural extension of one’s current credit card spending habits. After all, if there are more credit cards available, then there’s greater access to the incentives provided by credit card companies, as well as a higher credit limit. However, certain things should be considered.
A borrower’s credit rating can be hurt by applying for and holding a large number of credit cards. The banks and credit card companies could be forgiven for wondering if this person is desperate for money, anybody’s money, and if their unsecured lending will ever be repaid, even if the applicant has never missed a payment.
Another important aspect to a borrower’s credit rating is the ratio of the outstanding balance to the credit limit. If the outstanding balance comprises a large chunk of the credit limit, that can negatively affect the card holder’s credit rating. Rather than risk “maxing out” a primary credit card’s limit, it’s better to apply for a second card to protect one’s credit rating. With this in mind, it’s clear that holding two or three credit cards and using them wisely is preferable to overusing one or underusing five or six.
People apply and hold several credit cards for various reasons. Some borrowers simply want access to a higher credit limit without expanding their current credit card. Or they may have requested a higher limit and been refused. In that situation, it should be carefully considered whether the person needs the higher credit limit or whether they need to control their spending.
Another reason for carrying a second credit card would be for business purposes, keeping personal spending clearly separated from that required by a job or self-employment. This ensures credit card expenses and interest can be more easily deducted for tax purposes, or reimbursed by the parent company.
Other people may wish to take advantage of low interest rates for both spending and for balance transfers, but this is difficult to do with only one card. Holding two credit cards, one with a low interest rate on purchases and one with a low interest rate on balance transfers, is the obvious solution.
Finally, some borrowers merely wish to take advantage of various rewards programs, perhaps holding one card associated with an airline for travel and another that offers gift cards suitable for birthday or Christmas presents. In this case, the card holder is likely to be a big spender who nevertheless pays off the entire balance each month, without fail. Otherwise the cost of the credit cards outweighs the value of the rewards received.
