Yes, get a second credit card, if you used the first wisely
Another will help build your credit score
Erica Sandberg is a prominent personal finance authority and author of "Expecting Money: The Essential Financial Plan for New and Growing Families." She writes "Opening Credits," a weekly reader Q&A column about issues for people who are new to credit, for CreditCards.com.
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Dear Opening Credits,
I'm 20 years old and have just passed the one-year
mark on having my first credit card! I am wondering when it is the right time
to get another card. I have an $800 limit on this one
and know getting a second credit card will help keep my
utilization ratio low and build my credit. I pay off my full balance every
month and have a steady source of income.
Something tells me that you either are
or were a fantastic student. Clearly, you know the rules of the credit game and
follow them carefully. It's not always easy to do so. As you may be aware,
millions of perfectly intelligent adults get into trouble with credit cards
because they lose track of what they charge, or simply spend more than they can
afford to repay quickly. Not you, though. So far, you've got it all under
More, you have a specific goal, which
is to use the plastic you have now to create an even better credit profile for
later. You're correct about utilization and the way it affects your credit
score. Here's how it works, and what you can do to become a high achiever.
When most people refer to credit
building, they mean establishing a long and positive pattern of borrowing and
repaying money. The financial institutions that lend you money send the
information about your accounts to the three major credit reporting bureaus
(Experian, TransUnion and Equifax). Credit scores are derived from the
financial information on those reports.
The most common score is the FICO, and
it ranges from a low of 300 to a high of 850. Check yours now to see what they
are. You can pull scores for about $20 each from myFICO.com. With just over a
year of responsible use behind you, it may be pretty good already. An excellent
score is considered to be in the mid-700s on up. Payment history is 35 percent
of the score, so because you've been timely, you're doing fine. Credit utilization (the ratio of how much you owe compared to your total credit limit) is next in
line for importance, at 30 percent. Keeping the balance near zero is best
(which is what you do!), but the general rule is to owe no more than 30 percent
of your available credit line.
The length of time you've had credit,
the types in use and the number of inquiries for more credit comprise the rest
of your score. While you can't speed up time, you can add another card to your
wallet -- as long as you don't overdo the applications. Too many inquiries have
a temporary negative effect on a FICO score.
If you believe that you can easily
handle another credit card, go ahead and do so. With your FICO score in hand,
you'll know which cards are within reach. For example, your scores may be in
the good range (around 650 to 750), so scan card offers available for consumers
whose scores fall within that range. Or you may want to get a retail card at
your favorite store or a gas card at the service station you use most.
A word of warning: The more cards you
have, the more complicated credit management can become. Watch your statements
and balances like a hawk. Then, keep doing what you're doing: charging smartly
and developing a gorgeous financial reputation.
See related: FICO's 5 factors: The components of a FICO credit score
Erica Sandberg is a nationally renowned personal finance authority. She’s host of several financial web shows, and a frequent guest for media outlets such as Fox, Forbes, Nightly Business Report and NPR. Erica previously was affiliated with Consumer Credit Counseling Service and was KRON-TV’s on-air credit expert. Her book, "Expecting Money: The Essential Financial Plan for New and Growing Families," was published in 2008 by Kaplan Press.
Send your question to Erica.
Published: December 18, 2013
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