Credits cards have become a staple of life that allow people to afford the things they want and need, whether or not the full amount is necessarily sitting in their bank account when they buy these things. With credit cards, we’ve been able to enjoy purchasing the things we need, without worrying about walking around with a wallet full of cash, or feeling anxious about whether or not a business will take a check.
But this begs the question: if I already have one credit card, do I really need anymore? The answer depends heavily on you, and there’s no set rule about how many credit cards any one person should have. It’s a very individualistic answer, based on several key considerations you need to make, and we’ll explore some of those key factors below.
Your Interest Rate
The first factor you should look at when you’re considering whether or not to get a second credit card is the interest rate you have on your current card. Since your interest rate will determine what the penalty payments will be if you don’t pay off your full balance, you may want to consider a second card that you can use as an alternate.
Consider the following – if you have a credit card that has a 20% interest rate, even just a total balance of $300, after paying a $200 minimum, will add an additional $60 you have to pay. That’s pretty steep, so to offset that, you may want to consider a card with a lower interest, if you use your card frequently.
Bear in mind – cards with low interest rates tend to carry lower credit limits as well. Since the card company won’t get much out of you in terms of interest, many agencies will try to make it harder for you to not overspend, which leads to my next point.
Your Credit Limit
Your credit limit refers to how much you can spend on your card before you start getting declined. Credit limits can fluctuate widely based on the credit card agency, the assigned interest rate, and various other factors.
When you analyze the credit limit on a card, think about how you utilize your card, and if it’s doing everything you need it to do, if it’s doing too much, or not enough. Consider this: if you have a monthly credit limit of $2,000, but between groceries and gas, you spend about $300 a week on your card, you’ll spend at least $1,200 each month, which is more than 50% of that card’s limit. Since using anything past 35% of your total credit limit can start to negatively affect your credit score, that’s a problem. If your circumstances are similar to this scenario, you may need to consider getting a card with a higher limit, or request an increased limit on your current card.
Bear in mind that the converse of what I said about interest rates is true for credit limits: if you have a card with an exceptionally high limit, you can expect that the interest rate will probably be higher also. If you know for a fact that you’ll always pay your balance in full, this won’t become an issue for you, and it will be perfectly fine.
Credit History and Credit Score
Before you start shopping, and applying, for new cards, take a moment to consider your current credit history, and check your credit score. If one or either of these areas are poor, you may find yourself being denied for a new card, or having to settle for a card that has neither a very high credit limit, nor a good interest rate.
Your credit history is based on both how long you’ve had access to a line of credit, as well as how responsible you’ve been about paying at least the minimums on your card each month. Your credit score is a number based on your financial life that indicates, in essence, how trustworthy you are with money.
In terms of your credit history, if you’ve had difficulty in making at least the minimum payments in the past, or you’re currently dealing with a high amount of debt, either from interest rates or any other source, then a new credit card is probably not what you need right now. Work on getting your current credit card debt under control first.
For your credit score, if your score is in the poor to fair range, it will not only limit the options you’ll have for a new credit card, but the hard inquiries made against your score to apply for a new card will bring your score even lower. Since a new card is supposed to help you live an easier life, and gain more control over your finances, this is definitely not the way you want to go.
Your Credit Diversity
When we talk about credit diversity, what we’re referring to is the different types of credit that you have access to. A diverse credit portfolio indicates that you can handle the different terms, conditions, and requirements that type of credit entails. Credit diversity also plays a factor in calculating your credit score, so if you want to diversity your portfolio, a second credit card may be just the ticket.
Among credit cards, there are different types that have different stipulations, and different perks for you as the user. A bank credit card, for example, might offer you cash back or points when you make purchases with that card, while a gas card might save you money for every gallon of gas you pump. Even just the subtle differences between these cards can be enough to introduce enough diversity into your portfolio to increase your score.
Something else to be aware of: it’s not a good idea to apply for a card just based on the type, while ignoring the credit limit and interest rates. In addition, even if you’re confident that more diversity is what you need, and you can manage the different cards, don’t apply for them all at once. Wait four to six months in between each application, so that your credit score doesn’t drop significantly from multiple, simultaneous hard inquiries against your score.