Using more than one credit card.
Keeping debt under control is vital to your financial future. One suggested way to do this is to eliminate how many credit cards you use. But is this really a good way to get control of your spending? Not if you’re interested in improving your credit score; and here’s why.
One of the most misunderstood concepts in finance is how your credit score is impacted. Many people are under the misconception that they should close credit accounts that they’re no longer using to help improve their credit score. This is plain and simply false. When you close an account, you no longer have that history on your record, nor is the credit limit included in the calculation of your score.
There are no specific numbers of credit cards that will ensure an excellent credit rating. Lenders are not concerned about the number of cards you use but focus their attention on the ratio of debt to available credit, the lower the better. Your debt to credit ratio is calculated by dividing your total debt by your total available credit. For example, if you have a total credit card limit of $5000 and owe $2500 in credit card debt, the debt-to-available-credit ratio is 50 percent.
Using more than one credit card responsibly will help your credit score and more. Here’s why:
Older accounts have value
Allowing credit card accounts to remain open will help you sustain a healthy credit score. In fact, by closing credit card accounts you may suffer adverse effects to your credit score, and for people with only a few cards, the negative impact may affect their ability to get a loan.
Lower interest rates
Having the option to choose between several credit cards is the leverage you need to find the best interest rate deals. Use that information to appeal to your current lenders to match or improve the rate you’re paying. Consider a balance transfer, if it will save you money.
Emergency Benefits
Keeping an active, unused credit card stashed away in a safe place is like insurance in the bank in case of an emergency that requires financing, like a house fire or theft. Check the travel benefits and perks of your cards before traveling. When venturing out of your own country, there may be language issues, cultural barriers, money exchange issues and technical glitches. Take advantage of free services like auto rental and travel insurance.
In addition, always carry more than one card when traveling, in case you lose your wallet or purse. Multiple cards will help in emergencies when a credit card is denied or when a card company puts your account on hold because they're suspicious of your travel activity.
Internet Security Benefits
Designate one specific credit card that is only used for online purchases. This will allow you to monitor all the card activity, recognize fraudulent purchases and help put a stop to identity theft attempts before extensive damage can be done. When more than one credit card is used for Internet shopping, it's harder to spot unauthorized purchases.
Maximize Your Rewards
Credit card reward programs vary in the required actions to earn to biggest bonuses. Buy from specific categories or at designated merchants to earn bonus rewards. When you use more than one credit card, you can maximize the rewards you earn. For example, use a travel credit card to purchase your airline tickets for extra mile rewards or a hotel credit card for reservations and earn free nights. Many reward cards have a maximum reward limit; by using multiple cards you have more opportunities to maximize your rewards. But any reward is only an advantage, if you pay off the balance each month!
Tracking Expenses
By using more than one credit card you can easily separate your business and personal expenses. Avoid the frustration and hassle of keeping receipts for work expenses by using a card specifically for those purchases. It will also be easier to pinpoint tax deductions when separate cards are used.
In conclusion, the benefits of using multiple credit cards include emergency financing, online security and faster rewards. But never apply for another card, if you can’t pay off your balance each month. If you’re struggling with one card, adding another, no matter the benefits, is just a lose-lose situation.
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