Owning more than one credit card comes with its share of pros and cons. In one way it helps you build your credit score, however, on the other hand, it adds to your monthly budget as an added expense.
A credit card is a friend and a foe. It depends on how effectively and efficiently it is used. In times of financial crisis, a credit card is one of the best options for making various kinds of purchases. However, if used recklessly and without a monitor, the use of multiple credit cards can result in increased debt. This, in turn, will have a negative effect on your credit score and report.
Here are the pros and cons of owning more than one credit card:
Pros - Spend-Based Rewards
Credit card issuers and banks design credit cards understanding the spending category of people. It can be travel, shopping, dining, etc. If you own multiple credit cards each one curated especially for a spending category, you can earn most of the rewards which the different cards offer. For example, the travel card can be used for booking flight tickets and hotel stays and you can use a cashback credit card for supermarket rewards and cashback when you go grocery shopping.
Credit Back Up
Multiple credit cards can serve as a financial backup in the case of an emergency. If one of your credit cards is maxed out or does not have enough credit or has an outstanding bill, you can always use another credit card in the case of an emergency.
Travelling abroad is one such instance when having another credit card can prove to be helpful. You can choose a travel credit card to save money and earn rewards on flight tickets and hotel reservations.
Better Management of credit cards
While maintaining multiple credit cards can be a task, it can also result in better management of your credit. If for example, you have a travel credit card but you are not travelling at the time, you can lower the limit of your card or freeze it for a certain period of time. This will result in lowering down of expenses and your credit card bill for the month. When you have multiple credit cards, you can manage your credit in a better way. It is advised to maintain different credit cards for various types of spending in order to manage it better.
Improved Credit Score
By owning more than one credit card, the total credit limit which is given to you will be the combined limit of all your cards. The credit utilization ratio makes up 30% of your credit score. If you use your credit cards effectively, it will lower your credit utilization.
If you have only one credit card, most people tend to use up a majority of the limit available to them which increases credit utilization. This results in a low credit score. If you maintain a good credit utilization ratio on one card, it will help increase your credit score.
Many banks and credit card issuers have partnered up with various leading brands offering a wide range of offers and rewards from that brand. Hence, if you are loyal to a particular brand, you can avail that credit card and avail the offers given. It can include cashback offers, reward points on purchases as well as discounts.
One of the major advantages of holding multiple credit cards is the facility of a balance transfer. In times of emergency or if you have a low credit limit, you can transfer balance from one credit card to another. Another major reason you can transfer balance from one card to another is if you are paying a high rate of interest. You can choose a credit card with a lower interest rate and transfer your balance to your new credit card.
The major drawback of having multiple credit cards is the management of the bills. By holding 2 or more credit cards, the number of bills increased which makes it difficult to track them. Moreover, for each credit card, the date of bill payment is different making it strenuous to remember and pay them all on time. If you default on the credit card payments, it results in a low credit score.
Another disadvantage of maintaining two credit cards is the increasing amount of credit at the end of the month. If you wish to make a large purchase which you do not need at the time but have the means for it by holding two credit cards, it adds up to your bill which needs to be paid in full. It is important to keep a check on your spends to avoid debt.
These are some of the pros and cons of holding more than one credit card. It is advised to consult with a bank official to understand the terms and conditions associated with holding multiple credit cards for better management and no debt accumulation.