A second credit card: When it's wise to get one, when it's not
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Is it time for a second credit card?
Maybe you’re in your early 20s, a first-time cardholder with a low limit card. You’ve managed it responsibly so far, paying in full and on time every month. But now you want more charging power.
Or maybe you’ve maxed out a card with a high APR and interest charges are piling up. Transferring your debt to a 0-percent balance transfer card will get your financial situation back on track.
In either case, the prospect of getting a second card sounds promising. More cards, more options, right?
Not so fast, experts say. While a second card can help improve your credit score, act as a backup in case of an emergency, or help you diversify your credit pool, it isn’t right for everyone.
Here are the situations in which you should, and should not, get a second credit card.
Reasons you should get a second credit card
It might be a good time to get a second credit card if you’re looking to:
- Improve your credit score.
“There is a benefit to having more cards,” said Tamar Asken, a certified financial planner and real estate agent in Los Angeles. Having two or three cards is one kind of proof that you can manage debt and credit and maturely meet obligations, she said. Plus, it will increase the total credit available to you, which, if you don’t use most of it, raises that all-important FICO score.
- Have a backup, in case of emergency.
Say you lose your card. Most credit card companies will rush out a replacement within 72 hours, said Martin Lynch, a compliance manager with Cambridge Credit Counseling Corp. in Agawam, Massachusetts. “But especially if you’re traveling, you’ll have a new one that can tide you over,” he said. Lynch has three credit cards, one of which stays home in case his wallet gets lost or stolen.
- Diversify card benefits.
Maybe your one card is a plain charge card. A second card could be a rewards card. Or if you already have a travel awards card, a second one could be a cash back card. “The second card – you can use that to balance what you’re not getting from the first card,” said Beverly Harzog, consumer credit expert and author of the book “The Debt Escape Plan.”
Reasons you should not get a second credit card
It might be best for you to stick with one card – at least temporarily – if you currently fall under any of these categories:
- You’re struggling to
pay the one credit card bill you have.
Sure, two cards will allow you to spread out charges and due dates, but it will also offer you double the opportunity to sink into debt. “Develop the good habit of paying off a credit card on time and in full, and then you’re ready to move on to another card,” said Harzog.
- You think
a 0-percent APR offer will solve your debt problems.
You’re running a balance on one card, and then you see an offer for a card with 0 percent interest (or a low introductory rate) for 12 or 18 months. It may look tempting – but refrain from signing up for that second card if you know you won't be able to pay off the balance during the promotional period. “That just kicks the can down the road,” said Asken. In fact, if you don’t pay attention to the terms of the balance transfer deal, you could end up in deeper debt.
- You want
to buy a new car or a home.
If your priority right now is buying a new car or applying for a mortgage loan, it’s best to hold off on getting a second credit card. For the first year after you apply for a credit card, that card appears in the “new credit” section of your credit report, Asken said, and as such has a minor depressive effect on your credit score. But if you wait to apply for a mortgage for at least a year after opening a new line of credit, “that new account has a chance to season and not appear new anymore,” she said. “At that point, it does benefit you.”
What to look for in a second card
So, you’ve analyzed your situation, made up your mind and decided that you’re still interested in that second card. Here are some points to consider before applying for an additional card:
- Be clear
about why you’re doing this.
Do you want travel rewards points? Cash back? A card for emergencies? If a higher credit limit is all you’re after, the best option is to go to your original creditor and ask for one, said Bruce McClary, spokesman for the National Foundation for Credit Counseling in Washington, D.C. Looking for a better interest rate? Fine, but don’t take that as license to rack up new debt, he said.
- Note the
Annual fees can range from $0 to $500. Make sure that the fee on the card you like is worth it to you. “You’ve got to look at your spending style,” Harzog said. “Are you going to be able to maximize the benefits from the rewards?” If not, you're better off sticking to a no-annual-fee card.
- Read the
Interest rates matter, and can vary from card to card. The Federal Reserve is in a rate-hiking cycle. Plus, most cards advertise a range of APRs and you won't know what your APR will be until you are approved, so know that any balance you carry on the card could become very expensive if you don't pay it off every month.
When your application for a second card is rejected
What if you apply for a second card, and you’re denied? Don’t be discouraged! Instead, take action and pave the way to get approved the next time you try.
- Find out
why you were rejected.
Creditors are required to let you know why they turned you down. Sometimes, the reason is an error in your credit report, and if that’s the case, fix your credit report. Whatever the cause, “If something is serious enough to cause your application to be rejected,” McClary said, “then it’s serious enough to require your immediate attention.”
- Pay your
bills on time.
If you’ve kept up with your one credit card bill, but have fallen behind on student loan payments, that could be the reason behind the denial. As much as 35 percent of your credit score hangs on timely payments, said Martin Lynch, a compliance manager with Cambridge Credit Counseling Corp in Agawam, Massachusetts. “All open accounts have to be paid on time,” he said.
- Pay down existing credit card balances.
“Every little bit that you can drive down that balance will help your score,” Lynch said. Find out what your credit limit on your card is, and shoot for a balance that’s as low as possible.
- Become an
authorized user on someone else’s account.
See if a relative or a partner with good credit will add you as an authorized user on their account. The good payment behavior on that card will then be listed on your credit reports. This is not as risky as it sounds, Lynch said. The primary account holder can ask for a cap on spending by the authorized user – or the two of you can even agree to cut up your card as soon as it arrives in the mail. The point here is to improve your credit score, not to give you access to more methods of spending.
meeting with a counselor.
The National Foundation for Credit Counseling can hook you up with a nonprofit counselor in your area, said McClary, a foundation spokesman. “If you aren’t keeping up with your other financial obligations, it’s important that you get back on track before you try to apply for other credit in the future,” he said.
The upshot: Borrower, know thyself. If managing one card is a breeze, it’s not unreasonable to shop around for another one. But if you’re already in debt with the first, a second will likely be double the trouble. “Don’t build credit for credit’s sake,” said Todd Christensen, a financial educator and author of “Everyday Money for Everyday People.” “Credit is just a tool, not the ultimate goal.”
Video: Why was my card application denied?
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