Credit card is a great financial tool to help you during your initial years of employment. It lets you manage several basic expenses like mobile bills and utility bills, and buy basic necessities like a good laptop, trendy clothing, branded shoes, and more for your work life. Provided, you are prudent with your finances, a credit card can be an accessory for a comfortable life.
Let’s say you have been using your first credit card for a few years now. Your income has increased and you have achieved some job stability, you would want to get a second credit card. How do you decide the right time to get that second credit card? Here are some tips to help you make that decision.
1. When You Want A Higher Credit Limit
The credit limit on your credit card is determined based on your monthly gross salary. Usually, your credit limit is something like twice your monthly gross salary. If you feel that the current limit is inadequate, you can go for a second card which will give you an additional credit limit for your perusal. But be careful! Ensure that you can repay the bills on time and not end up with high interest charges.
2. For A Lower Credit Utilization Ratio
According to experts, your credit utilization rate percentage should be less than 30% of your overall credit. If your monthly payment is frequently over 30%, you should consider getting a second credit card to lower your credit utilization ratio. High credit use indicates a higher risk to a lender and may result in a lower credit score. As a result, a second credit card will provide you with a better credit limit while also ensuring that you do not exceed the credit utilization ratio ceiling of 30%.
3. Manage Repayments
If your credit card’s billing cycle conflicts with other bills and payments, you can get a second card to give you more control over your monthly credit card costs. For the second credit card, you can select a different billing cycle and take advantage of the 50-day credit-free period. If you have good credit management skills, you might make the best use of the second credit card to manage your monthly budgeting.
4. Get Additional Card Benefits
There are many special credit cards to benefit your spending pattern; fuel cards, entertainment cards, travel & leisure cards, air travel cards, shopping cards, medi cards, and many more. These cards are targeted towards specific consumer categories and offer them higher rewards for using them at particular merchant locations. If your current card doesn’t offer rewards in the category that you want, you can get a second credit card for that particular purpose. Reward points and cashbacks are an important benefit of credit cards and you have to make the most of your transactions to avail them.
5. Create A Backup In Case Of An Emergency
There can be emergencies of any kind; you could lose your card, or face a medical emergency that needs a higher credit limit; in such cases, a second credit card can really come in handy. Many people have a backup card at home so that if they lose their wallet, they can always have a fallback plan.
When Should You Avoid Getting A Second Credit Card?
As much as you want to get a new credit card, if you are in tune with your financial situation, you will avoid getting a second credit card in these below situations:
If you are already deep in debt –
If you are already in a lot of debt, and struggling to pay your current credit bills, it is absolutely not prudent to go for a second credit card. The wise thing to do now would be clearing off all your current debt an improve your credit score before applying for any kind of new credit.
If you need more fiscal discipline –
If you are constantly forgetting your payment due dates; if you are having a very high credit utilization rate; or if you constantly find it difficult to make ends meet with your monthly salary, it may indicate that you need more discipline with your money management. Getting a second credit card in this situation is damaging for your financial stability.
If you are planning to get a home loan or car loan in the near future –
If you are planning to get a home loan or car loan soon, the lender will be checking your credit score. If there is a new credit card, the lender may assume that you are credit hungry, which makes you a high risk candidate for him. Better to avoid getting that second credit card until your loan has been processed.
There are many benefits to holding multiple credit cards. Apart from the high credit limit you get, there are numerous rewards and cashback offers you can get. However, a credit card is a kind of unsecured loan, which, when not managed correctly, can lead to a debt trap. Get those additional credit cards only if you can afford to repay the bills in full every month.