Why carry multiple credit cards? Is there any benefit from having credit cards from different issuers – Visa, MasterCard, American Express, and Discover? It turns out that having many credit cards can be a great thing, not only for your ability to spend but your credit score as well. Find out why you might want to start looking for a new card in our video with credit card expert John Ulzheimer.
Hi I’m John Ulzheimer, a credit expert who contributes to Ibis Consultants.com. Today’s question is this: is there a reason to carry both a Visa and a MasterCard? Excellent question, and it kind of goes to the root of, “how many credit cards should I have, and what type of card should I have, in other words what variety of credit cards should I have.
In my mind the answer is clearly yes. there are still benefits to carrying different types of credit cards, and here’s why. Despite the fact that we’re in 2014 and most retailers will accept any type of method of payment, plastic, cash, check, you still will find from time to time, retailers that refuse to take certain types of credit cards. So while it’s very uncommon, yes, you may find a retailer who won’t accept your Visa, yes you may find a retailer that won’t accept your MasterCard.
I look at it this way: it’s best to have multiple credit cards and in fact I would even suggest having at least one card from all four of the major credit card issuing networks, so at least one Visa, one MasterCard, one Discover, and one American Express. This way you’re going to ensure maximum usability Because you’re always going to have a method of payment that any retailer will accept as long as they take some kind of credit card. And believe it or not having all these types of cards does not put you at risk to getting into more debt as long as you’re responsible with your usage of the plastic.
One of the benefits that you may not think about by having all these different types of credit cards is the benefit to your credit scores. Credit scoring systems like to see a lot of available credit on credit reports. In fact one of the most important measurements in your credit score is called revolving utilization or your debt to limit ratio, and let me explain how this works.
Your debt limit ratio is calculated by taking the aggregate balances on all of your credit card so add up all the balances on all of your credit cards and then divide that number by the aggregate credit limits on all of your credit cards. So if you added up the limits on all of your cards you’d have your aggregate credit limit. You divide the balance by the limit, and that yields a percentage. That percentage is called your revolving utilization or your debt to limit ratio.
The lower that percentage, the more points you’re going to earn in not only your FICO credit score but also your VantageScore credit score. So having a lot of credit cards, many of them being unused, is actually going to help to keep that percentage lower and your credit score higher. So while having a bunch of different types of methods of payment, Visa, MasterCard, Amex, Discover, helps in usability, in your ability to enact in commerce effectively without running into the hurdles of retailers who don’t accept certain types of cards, you’re also going to have collateral benefit of having a more protected credit score because of all the unused credit limit. (Learn about what merchants need to do to accept credit cards.)
Now, you don’t want to use all those cards at the same time because you don’t want to have balances on each account at the same time so you’re gonna wanna do what I call kinda the revolving door. So every month pick and choose a couple of credit cards, use those, pay them off at the end of the month, and put a couple of different ones in your wallet. Use them the next month, pay them off, and just continue to revolve them from time to time.
That way your credit card issuer is not going to close the account because of inactivity. And you’ll always have a method of payment, you’re gonna be well protected because of the Fair Credit Billing Act’s cap on credit card fraud, it’s going to help your credit score, you’ll be in good shape.
If you have any other questions pertaining to credit or finance topics, submit them to Ibis Consultants.com. Thanks for watching, have a great day.