If you have been using your credit card prudently by paying all dues on time and maintaining the right CUR (Credit Utilisation Ratio), then it may be the ideal time to opt for a second credit card. You can get a second credit card if you are sure about your repayment capabilities. Here is a guide on the benefits of a second credit card, precautions to be taken, and when you should get it.
Enhances credit score
A second credit card, when managed efficiently, will help improve your credit score. It is good proof that you can manage your debts well. Having more than one credit card actually helps you in keeping your credit utilisation ratio low. For instance, if you have a credit card with a credit limit of ₹4 lakh in a billing cycle and you spend ₹1.2 lakh during the timeframe, your CUR will be at 30%, which is considered ideal.
But if you have a second credit card with the same limit of ₹4 lakh and your spending continues at the same level, your CUR will drop to 15% due to a combined credit limit of ₹8 lakh from the two cards. This allows a lot of room for you to spend extra bucks when needed. But make sure that you pay the amount due on both credit cards in full.
Good back-up for emergencies
Your second credit card can be quite useful in times of emergency. You could be in a situation where you have to pay huge bills, but the credit limit on your first card is not sufficient. That is when the second credit card comes into play, as you can tap into the benefits of a higher combined credit limit.
A second credit card can also be a temporary replacement for spending if your primary card is lost or stolen. Card issuing banks take up to 72 hours to replace a lost/stolen credit card, during which they block all transactions. In such circumstances, a second credit card can be the alternative.
Diversify benefits
A second credit card enables you to diversify benefits. Diversified benefits/rewards are one of the main reasons for choosing a second card. For instance, if your first card offers cashback benefits, you should choose a second card that provides a different set of rewards. Having two cards with the same set of benefits—say, travel points or air miles—will not be beneficial, as you will lose out on rewards from other categories.
When should you get a second credit card?
You can opt for a second credit card if you consistently exceed the ideal CUR of 30% despite being in a position to repay the dues in full. In this case, you can request the card-issuing bank to increase the credit limit. If the issuer approves the limit increase and you are comfortable with it, you can continue with just one card.
You can choose the second card if the issuer refuses to increase the credit limit. A hike in salary or income is also a good time to get a second card, as your repayment capacity goes up. But keep your spending within reasonable limits.
What are the precautions you should take?
While a second credit card greatly enhances your spending capabilities, you should not go overboard with it. You should not make multiple credit card applications within a short timeframe, as it will hurt your credit score. Every credit card application generates a hard inquiry on your credit profile. Too many applications within a short time could result in a substantial drop in your credit score, as you would be viewed as a ‘credit-hungry’ person.
You should also avoid taking a second card if you are considering applying for a loan. This is because the new card would lower the average age of your credit accounts. Lenders are comfortable providing loans to accounts with a long credit history, as it is a good indicator of the borrower’s repayment capability.
Allirajan M is a journalist with over two decades of experience. He has worked with several leading media organisations in the country and has been writing on mutual funds for nearly 16 years.
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