When should you get your second credit card?

By: |
October 18, 2021 11:31 AM

Multiple credit cards can be rewarding in more than one way. However, there are a few situations where an additional credit card could add on to your problems than solve them.

With a low credit limit usage ratio, your credit score tends to get better, making you eligible for bigger loans in the future.

Credit cards have become essential financial tools in today’s world. The ease of accessing an interest-free short-term borrowing through credit cards not only adds convenience to our lifestyle but a responsible usage of this facility helps build a good credit history and score. The additional rewards, be it cashbacks, reward points, or discounts, make higher savings possible. No matter what the expense, from shopping offline or online for your household needs, to paying bills and utilities, to fees and subscriptions, using credit cards can be handy and rewarding.

Considering how rewarding cards can be and how different cards offer different kinds of benefits, there’s often the question: how many cards should you own? Is there an ideal number of cards? And if there is, should you go for them? Let’s explore the answers to some of these questions.

Multiple cards can be rewarding in more than one way. Here are the most important reasons why they may be a good idea.

Higher Credit Limit

Multiple credit cards collectively offer you a much higher credit limit. A typical no-frills card may offer you a limit of Rs 1 lakh. However, with two of them, your accessible limit becomes Rs 2 lakh. Even if they have lower credit limits of say Rs 75,000, put together, they give you a limit of Rs 1.5 lakh. This can come in handy during emergencies such as sudden hospitalisation or urgent big-ticket purchases running into lakhs. Having a higher credit limit gives you freedom from having to arrange the required large corpus, either through your own resources or by borrowing from friends and relatives at a very short notice.

Lower Card Utilisation Ratio

Ideally, one should avoid utilising more than 30-40% of one’s credit card limits. However, it is not always easy to maintain this ratio with just one credit card. There are times when you reach 80-90% of the credit limit, triggering an alert message from the issuer. From the issuer’s perspective, high utilisation makes you high risk and may be the reason for a lower credit score. An additional card means a higher credit limit. So, with a little management, you can ensure you don’t cross the usage ratio threshold of 30%.

Better Credit Score

With a low credit limit usage ratio, your credit score tends to get better, making you eligible for bigger loans in the future. Better credit score simply means your credit-worthiness is strong, which is indeed helpful in cracking a good financial deal. Further, managing two or more credit cards smoothly by spreading purchases as well as payments gives you sufficient practice to manage multiple lines of credit simultaneously even in future.

Easier Re-payments

With different billing cycles, your re-payment time span also gets spread by nearly a fortnight. This way, while you use both the cards during the same month, the repayment gets spread out in two different months. This management assures you are at ease when it comes to settlement of the credit card bills.

So, does this mean you should apply for that second card right away? While there are several benefits of owning multiple credit cards, they do not necessarily translate into applying for another credit card right away. Here are a few situations where an additional credit card could add on to your problems than solve them:

a) If you are in debt: When already there is a pile of debt that you need to clear, an additional credit card will only add to your debt burden. In such a situation, it is better to avoid it. Moreover, you may fall short of the eligibility criteria given your debt stress.

b) If you are planning to apply for home loan in the near future: You need to maintain a healthy credit score for getting the home loan (or for that matter, any big-ticket loans) sanctioned. If you are thinking of applying for a home loan, it would be better not to apply for any new credit products for a while so that your eligibility is higher. Also, applying for a new credit card can cause a dip in your credit score, thereby affecting your chances of getting a home loan.

c) If you think you are not financially disciplined: Your first credit card would have already given you an idea about your financial behaviour, ability or inability to honour credit, and discipline in making timely payments. If you are not confident about maintaining financial discipline or have been unable to do so due to extenuating circumstances, it’s best to eschew one more credit card.

There are reasons to be wary of holding multiple credit cards. Managing multiple billing and payment cycles can be difficult. Monitoring spends across multiple instruments can be difficult as can be regularly scrutinising those bills. However, a second credit card can mean higher credit limit, lower utilisation, and better rewards, along with a crash course in financial management. So, if you are sure you meet all the required eligibility criteria and if you are a disciplined user of credit cards, then there is no reason why you shouldn’t consider getting that second card.

(The writer is CEO, BankBazaar.com)

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