I was recently asked if having two credits cards was better for your credit score than having just one.While the answer isn’t entirely certain, since Fair Isaac Corporation doesn’t publish their credit score equation, I don’t believe having two credit cards will improve your credit score significantly over just having one credit card.
The credit score formula is computed based on your payment history, amounts owed, length of credit history, new credit, and types of credit used. If you read Fair Isaac’s description of what is included, nothing seems to indicate that having two revolving unsecured credit cards is better than one.
In fact, there’s specifically a factor that addresses different types of credit. Two credit cards would be two identical types of account, so it would seem that having one car loan and one credit card would be better than having two credit cards.
Additionally, your penalised for having a shorter length of credit history and for applications for new credit. If you currently have one credit card and are considering a new one, you would be penalised for applying for new credit. You would also be penalised for having a shorter average length of credit because the new card would start at 0 months.
That said, there are a few reasons why you might want to have two credit cards.
It’s good to have a back-up. If your credit card is lost or stolen, and you only have one card, you’ll be left using cash until your new card arrives. It’s a minor headache and there’s always cash but sometimes it’s nice knowing you don’t have to carry around a lot of cash because you can use a credit card. Plus, credit cards give you plenty of benefits not afforded cash, like purchase protection, rewards, and extended warranties. In the event that the card is lost during an emergency, you may be left without access to a credit card (or cash, depending on the emergency) for weeks. In this case, having a back up costs you very little.
I think of a spare credit card like I do having a paper copy of the white pages. Let’s say there’s a bad storm and my power is knocked out. Then I discover my water heater in the basement has a leak. Do I really want to look for a plumber or an electrician on my phone? No. I’d rather flip through a paper phone book, even though it’s only there for emergencies. That’s the benefit of a spare credit you keep locked in your desk drawer. Only for emergencies.
It will have a small positive effect on your credit score. While introducing a new card will lower the average age of your accounts, the additional line of credit will lower your total credit utilization. While that isn’t a good enough reason, on its own, to get a second card, it’s a nice benefit knowing it’s your backup. Some credit cards do not report a credit limit, most famously are charge cards, so if this is important to you then I would make sure the card reports a balance.
Different cards have different reward structures. I use two credit cards. The first one gives me 5% rewards at restaurants and bookstores, including Amazon.com, and the other gives me 3% at travel and gas stations. When I go to a restaurant, I use one card. When I fill up at the pump, I use the other card. Having two makes sure I get the most rewards for my spending dollar.
Different cards offer different promotions. If you’re trying to reduce your debt, it might make sense to get a second credit card if it offers you a 0% balance transfer. In this case, you would take a short term reduction in your credit score but get a promotion period, usually 12 months, of interest free financing to help you pay down your debt.
If you want a second card for the rewards or if you want a back up, you should get one. If you want a second one because you think it’ll help your score, stop. It won’t help your score, it’ll actually hurt it for a short period of time. Ultimately, it’s usually the non-credit score reasons that win out.
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