You've had your first credit card for a while now, and you've been using it responsibly. You're thinking it's time to add a second one. This might be a good idea, but whether you should -- and which one you should choose -- depend on many factors.
Taking out a second credit card can help you build up your credit rating, as well as give you access to other benefits, such as a higher spending limit or rewards. But before you make the leap into multiple card ownership, examine your reasons for wanting a second card. Then, do your research in order to choose an option that best fits your lifestyle. This guide can help you learn what to look for in a second card, explore your options and ultimately make a wise choice.
Potential benefits of getting a second credit card
When you applied for your first credit card, your main concerns were most likely getting approved and building a good credit history. You will have more options to choose from the second time around and could even score some nice rewards benefits.
Your second card might offer:
- The chance to transfer your balance for a lower interest rate. If you are carrying a balance on your first card and it has a high APR/interest rate, you might consider a balance transfer card as your second option. Many of these cards offer low, introductory interest rates for a set period of time, usually 0% interest for six to 18 months. Moving balances from high-interest cards to low-APR ones saves you a lot in interest and helps you pay debt down faster. Just make sure you don't run the balance back up on your first card after you make the transfer.
- A second option if your first card is lost or stolen. Your second credit card could become a backup, and then you'll have a card to use while you wait for a replacement for the first one to arrive. Consider storing your second card someplace safe other than your purse or wallet so you'll still have it on hand if you become a victim of theft or loss.
- The chance to improve your credit score. Having multiple, long-standing credit cards in your name and demonstrating responsible behavior with them is one way to improve your credit score (which is determined by FICO). This can help you qualify for a mortgage, finance a vehicle, or handle other loans down the road.
- A chance to cash in on rewards. Applying for a second credit card is a good time to consider reward options. Some credit cards are aimed at travelers and offer the chance to earn airline miles and hotel stays. Others reward you with cashback on everyday purchases or points you can use to buy retail gift cards, electronics and household goods.
- Improvement of your utilization ratio. How much debt you carry versus your available credit is a major part of your credit rating. This is called your "utilization ratio." FICO looks at the utilization of each card individually and at your total balance carried across all cards compared to your total limit.
If you carry a balance on your first card, simply upping your credit limit by adding a second card will improve your utilization ratio. For example, if you carry a $500 balance on your first card, which has a $1,000 credit limit, then your credit utilization is 50%. If you add a second card with a $1,000 limit, the ratio drops to 25%, improving your credit score.
In order to keep your utilization ratio in check, maintain a balance well below your credit limit on both cards, pay your bills on time, and pay more than the minimum each month. If you are unsure you can do this, it may be best to hold off on getting a second card.
When is a second card a good idea?
Is this the right time for you to get a second credit card? This is an important decision that will affect your credit. Before you choose and apply for a second card, ask yourself these questions:
- How long have I had my first card? It takes at least six months to a year after you open a credit card account for it to impact your credit history. Plus, applying for several credit cards within a short period of time risks lowering your credit score. You can find out more about how credit inquiries affect your credit score from FICO.A good rule-of-thumb is to wait until you've had your first card for a year before you apply for your second one.
- Can I manage a second card? Answering this question requires some self-reflection and honest assessment. If you've always paid the bills on time for your first credit card and you haven't run up the balance, you can most likely trust yourself to use a second card responsibly. But, if your main reason for wanting a second card is because you've maxed out the first one, think twice. Take time to pay down your balance and establish wiser spending habits. Think, too, about the logistics of managing two cards. You'll now have two payment due dates to remember, two bills to pay, and two credit limits and account balances to keep track of.
- Will I use my second card? If you decide it's time to open a second credit card, make sure you intend to use it somewhat frequently and pay it off every month if possible. Having an available credit limit that is too high in relation to your income can hurt your credit score. While carrying a balance and making regular, on-time payments can actually improve a low credit rating. Holding onto an idle credit card does not demonstrate responsible card use and, while it probably won't drastically hurt your credit rating, it won't improve it either.
What to look for in a second credit card
Your criteria for choosing a credit card might look a little different the second time around. When shopping for your second card, keep these potential perks in mind:
- You may qualify for a better credit card this time, one with a higher credit limit, a rewards structure, price protection, extended return policies on purchases, extended warranties, and other benefits.
- You can choose a card that offers cashback, discounts, or points for the purchases you make most often. Some credit cards offer 1% to 3% cashback on groceries, gas and drugstore purchases. Others allow you to earn points, which you may then redeem for cash and merchandise. You might decide to use your second card only for specific purchases, such as filling your car with gas and choosing one with high gas station rewards.
- You can forge a relationship with a second financial institution. Choosing a credit card from a different bank than your first one gives you power as a consumer. If you become unhappy with the service provided by one credit card issuer, you have an established relationship with another where you can take your business.
Use your second card wisely
Getting a second credit card can be exciting and can open up a whole world of purchasing power and rewards, as well as give you the chance to build an even stronger credit history. It can also be your first step down the path to financial ruin if you don't use it wisely. Know yourself and your spending habits, and only apply for that second card if you can keep your spending in check. You will only benefit from a second card if you use it responsibly.
[This article was first published on The Simple Dollar in 2020. It was updated in March 2022.]