Aiming to Improve Your Credit
In many ways, building credit is like building your career: the more experience you have, the more qualified you are for future opportunities. If you have years of positive credit history behind you, your credit score is likely to reflect your good habits. In fact, there are five factors in FICO credit scoring that can be improved by adding a second credit card to the mix, including your credit utilization ratio. While payment history ranks first on the list, accounting for 35% of your credit score, credit utilization comes in second at 30%. Credit utilization compares the amount of debt you owe to your total credit limit.
Note: The lower your credit utilization ratio, the better your credit, and it can significantly improve your credit score. For example, let’s say you have only one credit card with a limit of $5,000 and a balance of $1,000. Currently, you have a credit utilization ratio of 20%. Now, suppose you open a second credit card with a limit of $10,000. Immediately, your total combined credit limit increases to $15,000, and your overall credit utilization ratio drops to 6.6%. A change like this can quickly boost your credit, which is beneficial if you plan to achieve other financial goals in the near future, such as buying a house or a car.
Better Qualifications
The best secondary credit card will come with the best terms and conditions, and the most attractive ones are usually reserved for customers with excellent credit, including:
- No annual fees: Many premium credit cards charge an annual fee for their perks, but there are plenty of worthy options that don’t charge for your loyalty.
- Low or 0% interest rate: Many credit cards offer a period of interest-free spending for the first 12 months and beyond. If you hope to make a large purchase shortly after opening the account, this option allows you to pay off the balance without worrying about accruing debt.
- Flexibility in due date: It can be tough to pay a credit card bill on the first of the month if you don’t get paid until the sixth. Some credit cards allow you to request a due date that works better with your budget.
- Free gifts: Many credit card issuers go beyond spending rewards by offering free gifts periodically. For example, the American Express Platinum card provides customers with a $15 monthly Uber credit.
If your credit score is low, it may be challenging to find a secondary credit card that offers these terms. It’s wise to focus on improving your scores before starting to look for options that fit your lifestyle.
Serving Your Lifestyle
When seeking the best secondary credit card, you should carefully consider the reason you’re getting it in the first place. Setting limits on your usage will help avoid overspending by making thoughtful purchases. If you’re concerned about managing more than one card, here are some limited-use options that may include groceries, entertainment, bills, and emergencies. If you feel secure in your spending habits, opening yourself up to a broader network of spending could lead to significant rewards. Credit card issuers offer benefits to their customers as a way to compete for your business, providing you with:
- Cash
- Cashback
- Travel rewards and miles that lead to free trips and hotel stays
- Discounts with partner merchants
- Early access to ticketed events
- Purchase and fraud protection
- College savings accounts
Putting “the best” on that second best credit card can mean significantly cutting your budget if these expenses come up regularly – or better yet, if they align with your future lifestyle goals. Review your spending from the last three months, highlight the categories that cost you the most, and compare your results to credit cards that offer the right benefits.
Source: https://www.thebalancemoney.com/how-to-pick-the-best-second-credit-card-4587646
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