Should you have multiple credit cards?
While there’s no universal formula for how many cards you should have, in most cases using multiple credit cards can result in significant savings.
Having multiple credit cards is sometimes associated with debt or poor financial management. However, when used responsibly, multiple credit cards can be a powerful tool for improving your personal finances. While there are no rules to determine who should have multiple credit cards (or how many you should have), here are four reasons you may consider signing up for another card.
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Reward Categories
One of the primary types of credit card rewards are category rewards. With category rewards, you earn rewards at a higher rate when you use your card on purchases in a specific category. Common categories include:
- Dining
- Gas stations
- Groceries
- Internet and phone bills
- Streaming services
- Travel
Not all cards, and not even all reward credit cards offer category rewards. Those that do typically offer rewards in 1 – 3 categories. But most people spend their money on a fairly broad range of things, not just in a few categories. Therefore, to earn maximum rewards on your purchases, it is a good idea to have multiple cards with a wide variety of reward categories. The more categories you earn rewards in, the more rewards you can earn!
Signup Offers
Some cards offer special rewards when you first sign up for the card, such as earning a set number of points after hitting a spending limit within a specified timeframe. Discover doubles the points you earn in your first year of card ownership. These signup offers can be quite attractive, given that they are often worth hundreds of dollars. Such signup offers can be enough to justify opening a new account.
There are even people who signup for new credit cards exclusively for the purpose of earning the signup offer. Once the initial benefit is achieved, they usually close the account. This is called practice called churning. Churning can be lucrative, but there are drawbacks, including the impact to your credit score of applying for multiple credit cards in a short period.
Credit card issuers are aware of churning, and they don’t like it. The signup bonuses they offer are designed to attract new customers who will continue to use their cards after the introductory period ends, so they loose money when cardholders churn. Therefore issuers employ a number of strategies to combat churning. Today most credit card agreements include a clause prohibiting the abuse of signup bonuses, and granting the issuer the ability to cancel or recuperate bonuses if they determine that the user has abused the benefit. Some issuers will deny applicants who have opened too many accounts within a rolling period of a few years.
Non-reward Benefits
Credit cards can have benefits that don’t involve earning rewards at all. For example, there are cards that come with free airport lounge access or rental car insurance. If you rent cars on a regular basis, you may be able to save money by avoiding purchasing insurance from the car rental agency. Other cards offer statement credits for the TSA Pre-Check application fee or Clear membership, which can be valuable to cardholders who fly frequently.
Increased Credit Limit
Your credit utilization is a factor in determining your credit score. Credit utilization rate is the percentage of your available credit that you use (typically measured on a monthly basis). To maximize your credit score, it is recommended that your credit utilization remain below 30% of your available limit. This means if you have a $10,000 limit, your credit card balance should never exceed $3,000.
While you can manage your credit utilization by paying your card early and/or requesting a limit increase, each credit card account comes with its own limit – so every time you open a new account, your overall credit limit goes up. Since your credit utilization is assessed across all of your accounts, opening new credit cards makes it easier to stay below 30% utilization, regardless of which card you use.
If you are planning to get a new credit card, be sure to understand the impact to your credit score of the ‘hard credit inquiry’ required for most credit card applications. Also make sure that you weigh the benefits of the card against any costs, such as an annual fee. Finally, make sure you understand the card benefits benefits and terms and how it may complement or replace cards you already have.
In conclusion, if you want to maximize your credit card rewards and benefits, you should probably consider owning several cards – but just how many cards you should have (and which ones) varies widely from person. Always use credit cards responsibly, and happy earning!
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