Life presents us with a series of life-altering decisions. Should we search for a new job? Are we ready for marriage and children? Is getting a second credit card a good idea? Okay, maybe that last one isn’t in the same category, but it is an issue that requires some thought.
A second credit card means another monthly payment. Applying for one will have an effect on your credit score. There’s also the possibility that your spending could become unmanageable, and you’ll start to hear terms like “debt snowball” and “debt avalanche method,” which can sound scary if you don’t know what they are. (They’re ways to pay off your debt, BTW.)
None of this means that getting a second credit card is a bad idea. There are benefits to doing it and good reasons why you’d want to apply for one. In this article, we’ll go over some important points you should consider before taking this step.
4 good reasons to get a second credit card
Let’s focus on the positive. There are some clear benefits to getting a second credit card. Consider each of these carefully. The four most common reasons for putting in a credit card application for a second card are all related to your financial circumstances.
- Balance transfer: Transferring the balance on your existing credit card to one with a lower interest rate is a great reason to apply for a second card. This will automatically lower monthly payments and give you a chance to pay off your balance faster because most balance transfer cards come with introductory 0% APR offers.
- Emergency fund: Some folks get a second credit card to use for emergency situations only. It’s a good way to have extra purchase power without having to put money in the bank. Of course, if you use it, you’ll have another monthly payment to make.
- Improve your credit score: There are a number of variables used when calculating a FICO credit score. One of them is the number of credit cards you hold. Adding a second card could also increase your credit score by a few points because your total credit limit would be higher, which should in turn lower your credit utilization ratio. (As long as you’re not spending more!) Speaking of…
- Lower credit utilization ratio: Another variable in the credit score calculation is the amount of credit you use. This is calculated as a cumulative number, so getting a second card with a zero balance could offset high balances on your other card.
When should you apply for a second credit card?
It’s generally recommended that you wait until you’ve held your first credit card for a year before applying for a second card. Once you get it, use it frequently and pay off the full balance each month, if possible. You should make sure you’re able to do that before applying.
After using your first card for a year and making your payments on time, you may be eligible for a better credit card the second time around. Look for available discounts, lower APRs, rewards programs, and cash-back rewards. Take your time and shop around. It’s all about earning those #points.
In many cases, people find the second credit card becomes their primary card. If that happens, don’t close out the other card. Credit bureaus also look at the length of your credit history when assessing your credit score. Closing out the old card could lower your score, and nobody wants that.