Why Carry Multiple Credit Cards
Keeping debt under control is vital to your financial future. One thing that you may consider is to eliminate the number of credit cards you’re using. 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 the credit score. Many people are under the misconception that they should close credit accounts that they’re no longer using to help raise their 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 is no specific number 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 $5,000 and have used $2,500 of it, the debt-to-available-credit ratio is 50%.
There are benefits beyond your credit score for using more than one credit card responsibly.
Older Accounts Have Value
Keeping accounts open will provide longevity to your credit history. In fact, by closing credit accounts you may suffer adverse effects that lower your credit score. For people with few cards, the impact will be greater.
Lower Interest Rates
Having more than one card provides leverage when you are shopping for a lower rate. Use that information to appeal to your current lenders to match or improve the rate you’re paying. Consider whether a balance transfer is advantageous to saving you money on interest and fees.
Keeping an active, unused credit card stashed away in a safe place is like insurance 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. There may be services that can help with language and 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 where you are unable to pay for purchases with a card that 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 damage is done. When more than one credit card is used for Internet shopping, it’s harder to spot unauthorized purchases.
Maximize Your Rewards
One of the benefits that may be a little more difficult to navigate is the opportunity to earn maximum rewards. The only way this works is if you pay off the balance on every card, every month. But if you can manage the juggling, you can use specific cards for specific purchases to maximize the payback.
Using multiple credit cards responsibly will help raise your credit score, make funds available in case of emergencies, and provide additional online, travel and purchasing security and benefits. Using more than one credit card could help keep work purchases separate from personal purchases and make pinpointing deductions easier for tax purposes.