Natasha Macmillan, Business Unit Director - Everyday Banking
If you’ve carried the same single credit card since your university days, there’s probably a reason. Perhaps you like the simplicity of only having one bill to pay every month. Or maybe the idea of researching new credit cards seems like too much work. Besides, your current card works just fine. Why complicate things?
While the same trusty piece of plastic you’ve carried for years may have served you well, the truth is that having more than one credit card can benefit both your credit score and your wallet.
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Should you close your first credit card?
Right off the bat: under very few circumstances should you ever close down your first credit card. A large part of your credit score is determined by your credit history, which is just what it sounds like: a history of your relationship with credit. The longer this history is, the better your credit score will be, and keeping your oldest credit card active (even if it’s just to pay off one recurring bill a month), keeps your history extensive, telling lenders that you are an experienced and responsible credit user. So, while you may want to replace your main credit card with something more relevant and current, keeping it around is still the best policy.
So why get a second card?
Reasons to get a second credit card
How do you know when it’s time to upgrade? The answer may be different for everyone, but in general, there are a few main reasons most people decide to put their old card on the bench and bring in something new.
1. Your credit has improved
When you’re mired in overdue statements and bad credit, getting a fancy new credit card seems like a faraway dream. Once you’ve done the work to eliminate your debt and improve your credit score, however, there’s no better time to think about adding another payment option to your wallet.
With improved credit, you’ll also have access to cards with higher spending limits and better rewards, giving you a wider variety of choices.
2. You want to pay down existing debt
Conversely, if your credit still needs a lot of fixing, it may be worth looking into a balance transfer credit card to pay off your existing debt quicker. Balance transfer cards are easy to get approved for and usually offer a very low promotional interest rate (typically anywhere from zero to 2%) for the first 6 to 9 months, allowing you to chip away at your principal more efficiently during that window of time. If you have a solid payment plan, it can go a long way to helping you get debt free.
3. Your income has increased
When your income increases, so does your spending power. You may find yourself eating out more often, going to live events, and travelling more than once a year. And while that no-fee student card may have been a perfect fit when you were making less, the rewards you could be getting from a higher-tier card (which you can now afford) make it plainly obvious you’re due for an upgrade.
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What to look for in a second credit card?
What you should look for in a second credit card is entirely dependent on you as an individual. Ask yourself: why am I signing up for this second card, and what do I hope to get out of it?
- Annual fees: Depending on the card, the annual fee can range from zero all the way up to six or seven hundred dollars. In most cases, the better the rewards, the higher the annual fee, so make sure you take that into consideration before signing up for that fancy travel card. If you’re planning on paying off your bill in full every month and collecting serious rewards, it may be worth it to pay a higher annual fee. If you’re someone who tends to keep a balance on your card from month to month, however, the interest you’ll be accruing will make any rewards you gain pretty irrelevant, so opting for a no-fee card with a more modest rewards system might be the way to go.
- Rewards: Speaking of rewards - they tend to be the main reason why customers seek out a second credit card in the first place. If you’re in the market for a better rewards card, think about your lifestyle and spending habits. Do you travel frequently? Do you use your credit card regularly for gas, groceries, and recurring bills? Understanding the way you intend to use your new card can help you select one with a rewards system that will provide you with the most value. Look for cards that offer higher-than-average points or cash back in the areas where you intend to use the card the most, then compare to find the best deal.
- Interest: If you’re planning on carrying a balance (and especially if you’re looking for a balance transfer card), interest should be something you pay attention to in your search. A credit card with high interest rates can quickly bury you if you’re not careful, so try to find one with a more modest APR to keep your head above water. While there are plenty of great low-interest cards available, it's important to know that they usually don’t come with many rewards (although they often carry very low annual fees, if at all).
Should you have more than two credit cards?
This really depends on your income level and ability to responsibly handle credit. While some people can easily manage three or four credit cards by using each one for a specific purpose (groceries, travel, recurring bills, etc.), keeping track may prove difficult for others who are more liable to overspend or forget about statement due dates. Plus, if you’ve got multiple cards with cash back or points, the pile-up of their respective annual fees could take a big chunk out of your rewards.
A good rule of thumb is to see how well you do with two credit cards for a period of six months. After that time has passed, give yourself a review. Did you suffer any late or missed payments during that period? Were you able to keep to the same spending level as before? If you feel like you’ve handled it well, you may be ready to add another card into the mix.
Keeping a few credit cards in good standing can improve your credit score and credit history, not to mention maximize your reward value, but it can be a slippery slope unless you can manage all of them responsibly.
The bottom line
There are lots of benefits to having two credit cards: if used responsibly, they can maximize your rewards and increase your credit score. Just remember to only take on a new credit card if you can handle it, and keep a close eye on annual fees, spending, and interest rates. Remember the tips above, and share any of your own in the comment section below.