The Advantages of Having Multiple Credit Cards
A credit card is one of the objects that bring opposing reactions to certain people. For some, it makes transactions more convenient and easier to keep track of. For so many others, however, it is an object that ceaselessly lures one to spend more.
Indeed, the ease of using a credit card with a high credit limit can easily give a false impression of wealth. And because of that impression, it’s easy for anyone to find themselves buried in debt before they even realize what’s going on.
This is the reason why a lot of people are afraid of signing up for multiple credit cards and risk buying more that they can afford. In addition, having multiple credit cards can create confusion for the cardholder, especially when it comes to tracking all the transactions.
Despite this, however, 51% of Americans continue to own more than one credit card. But then again, majority of Americans also have bad credit scores below 680. Is this statistic caused by people who have multiple credit cards? Of course not! The truth is that poor credit scores are a result of poor debt management. You can “play it safe” and have just one credit card, but if you slack off with your payments and fail to fulfill debt obligations, you still end up with poor credit. In short, credit cards are not the source of poor credit. Delinquent payments do.
Although there seems to be a notion that having multiple credit cards can easily lead to bad credit scores, there isn’t any concrete proof for this. In fact, people with excellent credit scores of 780 and over have multiple credit cards. Because believe it or not, it is actually easier to have an excellent credit score if you have multiple credit cards.
But how is this possible?
First of all, if a cardholder has old and established accounts, has lots of credit activity, and is able to fulfill all his debt obligations his/her credit score will naturally climb higher and higher.
It is important to understand that debt-to-limit ratio (or the ratio that indicates a person’s debt in relation to that person’s credit limit) is one of the most important factors that determine your credit score. The lower the ratio, the better your credit score. Having multiple credit cards help you keep your debt to limit ratio low.
Suppose that in your regular monthly finances, you incur $2000 worth of credit card debt. If you have only one credit card with a $3000 limit, your debt-to-limit ratio is roughly around 66%. Even if you pay the $2000 balance on time, a 66% debt-to-limit ratio still pulls down your credit score. If you have other credit cards that amounted to an overall limit of $10,000 while still maintaining your monthly average credit card debt of $2000, your debt-to-limit ratio drops to just 20% which then pulls your credit score up.
Another advantage to having multiple cards is that you’ll always have a safety net, especially if one of your credit card providers chooses to close all of their credit card accounts. If this happens to you and you’ve been using only one card, getting your account cancelled can look really bad for your credit history, whether or not it was your fault. If you had multiple credit cards, however, your credit score won’t take such a huge blow, since your other cards can keep your credit history intact. And in the event that your card gets lost or stolen, at least you know that you’ll always have some backup.
In addition, you can also choose to limit each card to a particular kind of transaction. For instance, you can use one credit card (preferably with the lowest credit limit) for all your online purchases. If worse comes to worst and you become the victim of identity theft, you can keep the damage to a minimum; this is because you used the card with the lowest limit, and not much can really be taken away from you from online crooks.
Another huge benefit of having multiple credit cards is that you have a definite leverage over a range of banks. You get to make them compete for the lowest interest rates, which is always good for the borrower.
Sure, it’s true that credit cards can be risky. But they will only be as risky as what you make them out to be. If you do your best to pay your bills on time and curb the urge to buy everything on display, you can make your credit cards work for you.
Tags: credit card, credit card debt, credit scores, multiple credit cards