Your first credit card may have been your first experience with credit, so you may not have an amazing interest rate or best-in-class rewards. If you’ve been able to build or improve your credit score…
Your first credit card may have been your first experience with credit, so you may not have an amazing interest rate or best-in-class rewards. If you’ve been able to build or improve your credit score since then, you may now qualify for better terms and perks. Here’s what you should consider as you shop for a second credit card.
Why Getting a Second Credit Card Could Be a Good Idea
Having just one credit card can be problematic. Merchants don’t always accept all credit cards. For instance, some establishments may not take Discover. Having credit cards on more than one network can give you options.
It’s also good to have a backup in case you lose your primary credit card, especially if you travel on a regular basis, says Stacey Black, financial educator at the nonprofit credit union BECU. It takes time for a replacement credit card to be mailed to you. If you don’t have another credit card to put charges on until your replacement arrives, you may be stuck using your debit card, checks or cash. This can make some transactions, such as renting a car, more difficult.
Adding another credit card with a lower interest rate or a zero percent promotional interest rate could have a powerful effect on your finances. You could start saving money on interest payments by transferring the balance you owe to the lower interest rate card.
And you may want to open another credit card to gain access to an additional line of credit, in case you have an emergency expense. While using a credit card for emergencies isn’t ideal, it can be better than turning to higher-interest borrowing options, such as payday loans.
Finally, in addition to rewards, some credit cards offer perks, like:
— Travel statement credits
— An auto rental collision damage waiver
— Extended warranties
— Price protection on purchases
— Theft or damage protection
— Trip cancellation or interruption insurance
More Than One Credit Card Isn’t for Everyone
Keep in mind that having more than one credit card won’t always help you. In fact, it could put a major dent in your finances if you’re not ready for the responsibility.
A second credit card may not be a good option if you’ve already maxed out your current credit limit. Although it can reduce your overall credit utilization rate, opening another credit card gives you access to more credit, which can be tempting to use. Unless you’re certain you have a system in place to avoid abusing the additional available credit, you could end up digging yourself deeper into debt.
At the same time, managing many bills creates chaos. Adding more than one credit card to the mix could raise the risk that you’ll miss a payment, which could damage your credit score and cost you in penalty fees and interest.
If you’re not interested in opening a new credit card account but want to improve your current card, you have options. Talk to your issuer to see if you can get more favorable terms, such as a lower interest rate or a higher credit limit, or move from a secured to unsecured card. Even increasing your benefits on the same account may be possible if you talk to your issuer.
For example, the Capital One Quicksilver Card is issued at Visa Platinum and Visa Signature levels, which come with different benefits. If you currently have a Visa Platinum, you can request a review of your account to determine whether you qualify for a Visa Signature account with greater benefits.
How to Successfully Manage Two or More Credit Cards
Managing two or more credit cards adds another layer of complexity to your finances, but you can reduce the complexity by creating systems.
Some credit card issuers let you change your statement and payment due date, allowing you to pay all your bills at the same time each month, or split them up so one credit card bill is due during the first half of the month and the other during the second half of the month. The key is finding a system that works for you.
Additionally, credit cards usually allow you to set up automatic payments. Using this feature can help you make sure you never miss a payment. You can even avoid interest charges if you set up automatic payments for the full statement balance.
Automatic payments can get dangerous if you aren’t careful, though. “If you’re not really good at balancing your checkbook, don’t set up automatic payments. It will just cause you grief,” says Dawn-Marie Joseph, president and founder of Estate Planning & Preservation in Michigan. Automatic payments will occur regardless of whether you have money in the bank to cover the payment and can result in hefty overdraft fees if you have insufficient funds. Overdraft and returned payment fees could exceed the interest and penalty fees of a late or missed payment.
A great alternative to automatic payments is using payment reminders on your paper or electronic calendar. Setting up reminders in more than one place can be helpful if you sometimes dismiss the alerts without following through.
What to Look for in Your Next Credit Card
If you feel you can successfully manage a couple credit cards, choose your next card carefully.
Consider how you want to use your new card. Do you want to earn rewards, get a zero percent introductory rate or take advantage of special benefits? Don’t forget to consider credit cards that fill in any gaps in features or benefits your current credit card doesn’t offer.
Regardless of your goal, always read the fine print of every credit card offer before you apply, says Black. Understand exactly how the card and its rewards program work so there aren’t any surprises after you get approved. Here’s what to look for:
Interest rate. “If you plan to carry a balance, then you want to look for a card with a low interest rate,” says Black. If you’re currently carrying a balance, pick a card with an introductory zero percent APR on balance transfers. Don’t forget to factor in balance transfer fees and what interest rate will apply to your remaining balance once the promotional rate expires.
Fees. Also, check the annual fees associated with the card. Consider a credit card with no annual fee, especially if your first credit card has one.
In fact, you may eventually want to close your first credit card account if its fee isn’t worth the value it provides. However, closing your oldest credit card account can shorten the length of your credit history, which may lower your credit score. A second credit card without an annual fee doesn’t cost anything to be kept open indefinitely. As your second credit card ages, you may be in a better position to close an older account with less impact on your credit score.
Rewards value. Investigate any rewards program before you sign up for a credit card to make sure it provides the best value for you. In particular, learn how you can earn and redeem rewards. You’ll want to look for cards that offer the highest earning rates in the categories where you spend the most money. It’s important to consider redemption rates, too.
Another way to maximize rewards is finding the best rewards programs. Some credit card issuers offer multiple credit cards that earn the same type of points. If you already have one of these cards as your first credit card, you may want to get another card from the same rewards program. This could allow you to earn points faster or redeem the points you’ve already earned for a higher value.
Finally, make sure the card’s annual fee is worth the rewards and perks you’re getting in return. “If the annual fee is higher than the rewards you’re going to use, then it’s just not worth it,” says Joseph.
Benefits value. Credit cards may have overlapping benefits, such as extended warranty coverage and purchase protection. Although more coverage is generally better, you should be careful not to choose a card based on its benefits if you’re already covered by your first credit card — particularly if the second card charges an annual fee. Make sure you’re not paying more in annual fees than you have to in order to get the benefits you desire.
Credit Card Pairings to Consider
Choosing a second credit card that complements your first card or makes up for deficiencies is a smart strategy.
If you already have a low interest rate credit card for when you need to carry a balance, you may want to consider a general cash back credit card for your second card. That way, you can earn rewards when you know you can pay your balance off in full but can still pay a lower interest rate on your initial credit card when you need to carry a balance.
For example, you could combine the potentially low interest Barclaycard Ring Mastercard with an everyday rewards card such as the Citi Double Cash Card. It offers 1 percent cash back on all purchases and an additional 1 percent cash back on all payments. In total, you can earn up to 2 percent cash back when you can pay your balance off in full. When you need to carry a balance, you can use the Barclaycard Ring Mastercard and use the Citi Double Cash Card for purchases you know you can pay in full.
If your first credit card is an airline credit card, you may want to get a hotel credit card from your favorite hotel chain as your second credit card. Then, you can start earning free hotel stays to further reduce your travel costs. For example, a combination like the U.S. Bank Skypass Visa Secured Card and the Marriott Rewards Premier Plus Credit Card could cover some or all of both airline and hotel travel spending.
If these combinations don’t seem like a good fit for you, there are plenty of other credit cards to choose from. After you figure out your goal for your next credit card, a little bit of research will help you find the perfect second credit card for you.