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3 reasons you need more than one credit card

By , CardRatings contributor
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    multiple credit cards can work for youYour credit card is lonely. And, more importantly, your rewards probably aren't racking up as quickly as they could be or working for you as hard as they should be.

    Maybe you've heard that you should have more than one credit card in your wallet or, conversely, maybe you've heard that one credit card is all anyone needs. There are good arguments for either approach, but whether having more than one piece of plastic in your wallet is a good idea really depends what you want to get from your credit cards. If you just want one credit card to use occasionally, to make it easier to get a hotel room or make purchases online, there's nothing wrong with that. But if you want to maximize your rewards and continue to build a credit score that impresses the heck out of lenders, having several credit cards – and, of course,  managing them like a boss – is the way to go. Let's take a look at some of the reasons more than one credit card could be a great strategy for you.

    1. Two words: Maximum rewards

    If you've done any researching credit cards lately, you no doubt found that the rewards opportunities are myriad and seemingly endless. Travel, groceries, gas, department stores, restaurants and the list goes on. Know why there are so many reward options? Because there are dozens of categories of purchases that people make every day and credit card issuers are tapping into that when it comes to their reward programs.

    Unless you're a one-trick-pony who only buys groceries and never eats at restaurants or only rides public transit and never drives or flies anywhere, there are combinations of credit cards that would help you earn the most rewards. In general, the card with maximum rewards on travel is not the same as the card with maximum rewards on groceries. Sure, you can use one card for all your purchases, but you'll be leaving rewards on the table.

    Consider this: You have one card that earns 2 percent cash back on gas purchases, but only 1 percent on everything else, including dining out. Spend $100 on gas one month and $500 on dining out and you've earned $7 cash back for the month. Not bad, but not exactly a stellar rewards return.

    Now consider this: You have one card that offers 2 percent cash back on gas purchases as well as a different card that earns 5 percent back on your restaurant purchases for that quarter. Your $100 on gas and $500 on dining out is suddenly worth $27 in rewards for that month. Now we're starting to see some quality rewards return.

    Even better, neither of those cards comes with an annual fee (yes, there are solid rewards-earning options that are annual-fee-free), so those rewards are all yours.

    There's an additional potential benefit related to earning rewards and multiple cards, which brings us to our next point…

    2. Combine transferable points cards

    Sometimes it can pay to be loyal to a certain brand of credit cards. One of the best examples of this is with Chase cards on the Ultimate Rewards® system. For instance, if you have a Chase Sapphire Preferred® Card, you could use that for two times the points on dining out and travel. Then, use your Chase Freedom® credit card for purchases in the 5 percent cash back categories (on up to $1,500 spent in those categories each quarter you sign up) and then break out your third credit card, Chase Freedom Unlimited℠, for 1.5 percent cash back on everything else.

    With me so far? OK, well, at the Chase website, you can "combine points." That is, you can transfer points earned on your Chase Freedom® and Chase Freedom UnlimitedSM cards to your Chase Sapphire Preferred® card and then utilize the 25 percent bonus on travel redemptions offered to Sapphire Preferred® cardholders.

    Now, the Chase Sapphire Preferred® card does have an annual fee ($0 in the first year, then $95), so this wouldn't work out well if you didn't use your cards much. But if you're using your cards on things you purchase frequently, well, you can see how this could work out very well. Depending on your spending habits and the rotating category for that quarter, you could earn more than 1 percent in rewards on most, if not, all of your purchases and 5 percent or 2 percent on a fair amount of them.

    But Chase isn't the only game in town when it comes to combining points and being rewarded for loyalty. You could have, for instance, a business card like The Business Platinum® Card from American Express OPEN and a personal card with American Express, like The Platinum Card® from American Express, and combine your points into one rewards bank, making it that much easier (and faster!) to reach your reward goals (American Express is a CardRatings advertiser; terms apply for both cards)

    Or if you're a fan of Citi, you may want the Citi ThankYou® Premier Card and Citi ThankYou® Preferred Card (Citi is a CardRatings advertiser). The rewards opportunities are similar – both earn two times the ThankYou® points on dining out and entertainment and one point on all other purchases - except that Citi ThankYou® Premier cardholders also earn three times the points on travel, including airfare, gas, tolls and more.

    So why would you have both? Well, for the signup bonuses for one thing. New Premier cardholders can earn 50,000 bonus points after spending $4,000 in the first three months and new Preferred cardholders can earn 15,000 bonus points after spending just $1,000 in the first three months.

    Here's where it gets really good: Citi ThankYou® Premier cardholders can take advantage of their points being worth 25 percent MORE when redeemed through the ThankYou® Travel Center and, you guessed it, you can transfer your signup bonus points from the ThankYou® Preferred card and take advantage of the better redemption value with the Premier card.

    The point being, you can do a lot with your points when your cards are with the same credit card issuer. Furthermore, having two cards, even two similar cards, can help you when it comes to point No. 3:

    3. Give yourself a debt utilization cushion

    Believe it or not, having numerous credit cards can actually help your credit score. In fact, opening a new card might actually bump your score UP rather than down. Here's why:

    Sure, if you're irresponsible or unlucky with numerous credit cards, you can do an incredible amount of damage to your credit score and history, but if you have plenty of income, and you pay your bills without fail, multiple credit cards will help build your score. And that's, in part, because of what's known as your debt utilization ratio.

    >> MORE: How credit cards work

    Let's say you have one credit card with a $3,000 credit limit, and you often charge $2,700 on it. That $2,700 you charge means you're using 90 percent of the available credit you have. And let's say that you do this pretty regularly. Well, that could hurt your credit score, and, no, it doesn't matter that you're paying off that $2,700 every month without fail. The way credit scores are calculated, and the way lenders see it, you're a better credit risk if you have, say, three credit cards and never use more than 30 percent of the available credit across all your cards than if you only have one credit card and are using 90 percent of it. Remember this, too, even if you are paying off that one credit card every single month, your credit card issuer might be reporting your balance to the credit scoring agencies right at the end of your billing cycle, or when your balance is at its highest. That means the scoring agencies every month believe you're all but maxing out your card, but they never see your information when that balance is near zero.

    Most personal finance experts will tell you to use no more than 30 percent of your available credit. So that would mean, in an ideal situation, you wouldn't carry more than $900, at any moment, on your $3,000 credit card.

    Here's where having multiple credit cards comes into play. You have that one card with a $3,000 limit, but then you open another card with a $7,000 limit. All of the sudden that $2,700 goes from being 90 percent of your available credit to being just 27 percent of your available credit. And that's how you can instantly improve your credit score just by opening a card.

    There is a certain perverse logic to it. If you have three credit cards and aren't coming close to maxing out your total credit, it does show a certain amount of willpower and responsibility. If you have one credit card and you're constantly dancing near the limit, however, you can understand why that might be a red flag to a lender.

    Additional reasons to consider having more than one credit card

    There are little benefits that come with multiple credit cards you probably aren't thinking about. The main reason to have several credit cards is, as noted, because you can maximize rewards and strengthen your credit score. But there are some other minor benefits that may come with having more than one credit card (and these benefits won't seem minor if the scenarios actually happen).

    • If one card isn't accepted somewhere, you have another. It happens. Maybe a certain type of credit card isn't accepted at a store; odds are, another one of your cards will be as long as you diversify your processor. In other words, consider having an American Express AND a Visa in your wallet. Furthermore, if the worst happens and one of your cards has been frozen due to suspicious activity, you'll have another on hand to use until you can contact your issuer and get the suspicious activity freeze cleared up.
    • You might stay more organized. That is, you have one card that you primarily use for gas, another for groceries and another for travel. People are different. Maybe it won't help you organize your finances at all, but some people like having dedicated credit cards for certain purchases. This is especially true for small business owners; in that case, you really do NEED to have a card for your business expenses and one for your personal expenses.
    • You'll have more money for a financial emergency. If your car blows out, and you have three or four credit cards instead of one, and you need more money this month than usual, you'll be glad you had multiple cards. As long as you do pay them off quickly and don't create another financial problem, of course.
    • You have flexibility when it comes to fees and rates. If you do have an emergency situation and need to carry a balance for a few months, wouldn't it be nice to carry it on the card with a lower APR? Or perhaps one card is offering better balance transfer terms than the other. Furthermore, if you decide to travel abroad, you're going to want the option of a card that doesn't charge foreign transaction fees.
    • You're more protected from fraud. As mentioned above, if something goes wrong and a credit card is somehow compromised by a thief and maxed out, or your bank believes there is a problem and shuts down your spending, at least you'll have another card or two or three that you can use while the situation is sorted out. That way, you probably won't ever, say, find yourself stranded with a car, an empty tank and no working credit cards at a gas station in the dead of night. In which case, not only would your credit card be awfully lonely, you would be, too.
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