|by Jason Steele|
I have a close acquaintance that I regularly get together with. He is fun to hang out with, brilliant at his work, and is not bad at handling his personal finances. Nevertheless, every time I talk to him, I am surprised at some of the mistakes he makes with his credit cards and their rewards. It is not like he is missing payments or even paying interest; he is much too smart for that. It is just that he really needs my guidance when it comes to maximizing his relationships with his cards. This is the same person who I wrote about earlier in my piece, “How Not To Use Your Credit Card To Book Award Travel.”
His Latest Lesson
We are receiving the check from having lunch together, and he lets me know that he does not have his credit card on him. What happened? His wife lost her card, so they had to cancel his while they await new ones. Until then, he was paying for everything in cash. There is nothing wrong with occasionally loosing a credit card, it happens to the best of them from time to time, definitely including myself. Upon finding out that he was without a card, I asked him why he didn’t have another card. His answer was basically along the lines of “Why would I need more than one credit card?”
Where To Begin
Obviously, I informed him, his current predicament is one of many reasons why one should always have multiple credit cards. Cards get lost, damaged, stolen, and expired. In those situations, you can still get by with cash for a cheap lunch, but it becomes a little harder to conduct other transactions with cash. If you don’t believe me, try renting a car or a hotel room without a credit card some time. Better yet, just try ordering something off of the Internet with cash!
My parents gave me my first credit card as a teenager. The whole point was so that I would have something in an emergency. If I was driving around and my car broke, I would have to have a way to pay for a tow truck or repairs. Later when I was living out of state while in college, they made sure that I always had a credit card in case a whole host of emergencies befell me, especially while I was traveling to and from school.
Furthermore, having multiple credit cards increases your credit score. It is counter-intuitive to some, but each card represents a new line of credit, expanding your credit history. Beyond that, having a larger credit availability decreases your credit utilization ratio, another component in your score. For any given amount of debt, the more available credit you have, the lower your utilization ratio. Keep in mind that even those who always pay their entire balance in full will still have debt listed on their credit report. When these people pay off their statement balances, they will always have new purchases on their account that have been incurred after their last statement closes. Therefore, 20-50 days worth of spending will always appear as debt unless someone pays their statements well before their due dates or pays more than their balance.
Another good reason to have multiple cards is to maximize your rewards. Huge rewards can be obtained by sign up bonuses, but multiple cards also allow you to have specific cards for specific rewards. You can use a gas card for gas purchases, an airline card for airfare, and cash back cards where they return the maximum rewards. The possibilities are as endless as the number of credit cards on the market.
Can you have too many cards? Sure, but if you only have one, you are really selling yourself short. Many credit experts recommend that 4-6 cards is the optimal number to maximize your credit score. With so many enormous sign up bonuses being offered these days, it is sometimes tempting to apply for every card you see. If you don’t hold more than one card, you really should reconsider that strategy.