In modern times, cashless payments and digital transactions have taken over the world. This makes the credit cards are not an option, but rather, a necessity. The question that arises in this regard is how many credit cards an individual needs in the wallet just to be safe, in all regards. Some of the financial planners opine that having one credit card is more than enough as they fear that people might end up getting huge bills through multiple credit cards. The Federal Reserve Bank of Boston carried out a Consumer Payment Choice Survey in 2009, revealing that an average consumer has more than three credit cards.
This preference towards multiple credit cards proves that there are fewer chances of you running into debt traps, and many other advantages when you do not rely on just one card for your needs. Take a look at why it is good to have more than one credit card to meet your requirements.
Keeping the Credit Score in Check
One of the major concerns of having more than one credit card is a credit score that you get. The debt utilization ratio will be kept low, and thus, the credit score will actually be good when you have multiple credit cards. When your credit card has a credit limit of $2,000 and you charge about $1,800 per month to the card, then the amount of the available credit, or the debt utilization ratio, stands at 90%.
A high debt utilization ratio will hurt your credit scores. You might think that when you have one card and pay all the bills on time each month, then you must not get penalized for utilizing most of the credit limit. But unfortunately, the system works that way. You must not use more than ten to thirty percent of the available credit for each card at any given point in time for improving the credit score.
When you spread the $1,800 expenditure across different cards, it helps you to keep the debt utilization ratio under control. Keep in mind that FICO credit scores take into account the debt utilization ratio in the amounts owed a section of the score. But this part takes up almost thirty percent of the credit score.
FICO also warns you against opening multiple accounts that you do not need, only for increasing the total available credit and lowering the score. Thus, you need to tread very carefully and make sure that you do not end up maxing out any of your credit cards, just because you have more than one to choose from.
Different Benefits Associated with Different Cards
Having multiple credit cards lets you earn the maximum possible rewards on everything you buy using a credit card. For instance, you can use card A for the rotating cashback of 5% on certain categories. So, after a couple of months, you can get a 5% cashback on the categories such as gas, home improvements, plane tickets, hotels, groceries, and the likes. You can have card B that offers you 2% back on gas every month. You can use the card B when card A does not pay back 5% on gas.
Finally, you can have a card C that offers a flat one percent back on everything you buy. Card C is the default card for anything you buy where a high reward cannot be availed. For instance, you can use 5% cashback on buying clothes, from October to December, using card A. Use card C when you do not get any special bonus for the rest of the year.
It goes without saying that you should not be too indulgent. If you have more than one account, it is easy to lose one card or forget credit card bill payment. The problems can arise from oversights that easily end up ruining all the savings that you have amassed.
Getting the Backup when Needed
If the credit card company suspects that the account number has been compromised, or any fraudulent activity is detected, then it can cancel or freeze your card without much prior notice. Think of the best-case scenario: you will not get to use the card unless you contact the credit card company and assure them that you are holidaying in the Maldives and no one has stolen your card.
This is not a call that you can connect from the cash register of the shop where you are standing because you will have to confirm their identity and offer personal details. Thus, you need to figure out other ways to complete the purchase at that shop. In the worst-case situation, the company will give you a new account number and you will be left without any credit card till the day your new card arrives in the mail.
There are also chances that your card can be lost or stolen. Thus, you need to keep at least three cards: carry two cards with you and keep one safely at home. This will ensure that you always have a card that you can fall back on if the need arises.
Situations like these are not unheard of, and so, it is a good idea to keep a minimum of two to three cards with you. If at all you want to keep just one card, and then ensure that you keep a backup ready with you at all times.
The Right Solution for Emergencies
It is best to not meet with an emergency where you need to use a credit card. Ideally, one must have enough money in liquid accounts, such as the savings account, to use for emergency situations. However, if you do not have savings or if you do not want to end up spending all the savings suddenly, then you can keep a credit card aside for only emergencies. With regards to that, make sure you choose a card that comes with no annual fees, a low rate of interest, and a high credit limit.
The benefits associated with multiple credit cards are too many but it is important for you to manage it all correctly. Know all about the benefits associated with each card, the credit limit of every card, and the due dates of payment to make sure that keeping multiple credit cards work for you and not against you. Make the best possible use of every card, and ensure that the balances are kept low, and the bills are always paid off completely and without any delay. To manage your credit card efficiently and never miss a bill, click here.