Why People Have More than One Credit Card: Three Reasons

Man hand holding two credit cards

According to Experian data, the average American has almost four credit cards. Now, this doesn’t mean you need to have four credit cards too; there isn’t a one-size-fits-all approach to this. But there are potential benefits worth considering to having more than one credit account.

Power Finance Texas is here to discuss the main reasons why people have more than one credit card and the factors you should think about before opening more accounts.

3 Perks of Having More than One Credit Card

Three main benefits come with having multiple credit cards.

1) Maximizes Your RewardsWoman holding credit card while on the phone.

Having the right mix of credit cards can help you earn more rewards and optimize your earnings.

Let’s say most of your spending goes toward gas and restaurants. You can find credit cards that offer good rewards programs for each of these two categories and earn more cash back.

To expand on the example above, let’s compare these two situations:

  • You currently have a credit card that offers 2% on gas purchases and 1% on everything else, including restaurant purchases. If you spend $200 on gas and $400 on eating out during one month, you’ve earned $8.
  • You have one credit card that offers 2% cash back on gas purchases and another credit card that offers 5% cash back on restaurant purchases. If you spend $200 on gas on the first card and $400 eating out with the second card, you’ve earned $24 for that month.

As illustrated, splitting up your spending on two credit cards can further optimize your earnings. The key is to make your credit cards work for your lifestyle so you can maximize your rewards.

3) Can Increase Your Credit Limit and Credit Score

Having multiple credit cards increases your credit limit. And a higher credit limit can help build your credit score. Here’s how this works.

By paying off your credit card bills on time each month, you can lower your credit utilization rate—the percentage of total credit you use. Credit utilization is the second most important factor when calculating your credit score, so by lowering your credit utilization rate, you can boost your credit score.

Note: If you aren’t financially stable, opening up another credit card might do more harm than good. Not being able to pay your credit card in full and on time each month can increase your credit utilization ratio and lower your credit score.

3) Offers More Financial Flexibility

Emergencies happen in life, and having more than one credit card during dire circumstances can be pretty beneficial.

Let’s say you run into an unexpected medical expense. You can split the cost between two credit cards. Doing so will not only use less of your credit limit on one card, but it can also help you maintain a lower utilization rate. As discussed earlier, if you can pay your bills in full each month, you can maintain a low utilization rate and a good credit score.

How Many Credit Cards Should I Have?

There isn’t a straight answer to this question. The number of credit cards you should have depends on your financial situation and how capable you are of managing your bills. So it begs the question, what factors do you need to consider before signing up for more credit cards?

What Should I Consider Before Opening More Credit Accounts?

There are three considerations to evaluate before you open additional credit accounts.

1) Spending HabitsWoman with multiple shopping bags.

Do you stick to your budget and pay your existing credit card balances in full and on time? If your monthly balances are consistently high or not fully paid off, then it’s probably not a good idea to open another credit card. You don’t want to bury yourself in more financial challenges down the road, which might cause a dip in your credit score.

2) Loans

If you’re looking to apply for an auto or mortgage loan, you might want to avoid signing up for new credit cards to safeguard your credit score. Lenders will evaluate your credit reports, credit scores, debt-to-income ratios, and more to assess the level of risk you hold.

Though opening up a new card can help boost your credit score with timely payments, a credit card application can lower your score by a few points in the short term. This is standard for all credit checks or hard inquiries. And when it comes to buying a home, you want to be in a strong financial position, which means you don’t want to take any risks.

3) Rewards Available per Your Spending

If you’re in a good situation to open multiple credit cards, look at where you spend most of your money and align your spending with your credit accounts.

As we discussed earlier, various types of credit cards offer rewards for categories such as travel, gas, grocery shopping, and restaurants. So tap into what you spend most on and find credit card issuers that offer rewards for those areas. Doing this is crucial to maximizing your rewards and earnings.

Learn More with Power Finance Texas

Navigating your finances on top of all the challenges that life brings can feel daunting. Rest assured, Power Finance Texas is here to help make your journey just a bit easier. For more tips and guidance, be sure to dive into our blog.