Why you need multiple credit cards

By Bankrate.com

How many credit cards should you have?

Many people are afraid to have multiple cards. Some worry they would lose track of the different bills each month and fall behind on their payments. Others fear that the temptation of high credit limits would entice them to overspend.

And some people fear that creditors, upon seeing multiple open credit lines, would be less likely to lend them money because the creditors would suspect they'd be more likely to fall into debt.

Americans seem to be split on the issue of having one credit card or multiple cards: 51% of the U.S. population has two or more credit cards, according to the Center for Media Research.

Emily Davidson, a credit expert with Credit.com, says people often ask, "What's the magic number of credit cards I should have?" She says there is no clear-cut answer. "You should have as many cards as you feel you can manage responsibly."

For responsible people, however, there are a number of benefits to having multiple credit cards.

Financial safety

A simple reason to keep multiple credit cards is safety. If a person has only one credit card, there are a number of problems that can arise.

Several credit experts interviewed say you should keep one credit card with a zero balance in a safe-deposit box or other safe place outside the home. This way, if your wallet or purse is stolen or your house burns down, you'll have a credit card to use while you wait to have the damaged or stolen cards replaced.

A second safety reason would be for use exclusively for online purchases. Though online shopping is convenient, one of its primary pitfalls is the possibility of identity theft. A separate card for such purchases makes it easier to spot fraudulent activity and could help limit the damage if you ever are a victim of online identity theft.

Multiple credit cards also give a consumer a backup in case his or her primary card is denied. Recently, Davidson traveled to Europe with a friend who carried only an ATM card and a Discover card. The friend's ATM card was blocked (because the card company overzealously suspected fraudulent activity), and her Discover card was not accepted by many establishments.

Rewards

The most fun aspects of having multiple credit cards are the rewards. These days, consumers can get cards that give reward points for each dollar spent.

Maya Held, a professor at Marquette University, is so fond of the perks provided by reward cards that she has more than 15 credit cards. Her array of cards gives her gift certificates to Amazon.com and Target, among other places. When she reaches enough reward points on her Mypoints.com credit card, she gets to choose a gift card from a number of different establishments (as opposed to getting rewards for just Amazon or Target).

Scott Bilker, the creator of Debtsmart.com, and his family of five use rewards points for movies once or twice a month, including popcorn and drinks. "We haven't paid for a movie in over two years," says Bilker.

However, there are a few pitfalls. The biggest is that the reward cards often come with higher interest rates. As a result, these are not the kind of cards that people want to accrue debt on.

"I don't keep balances (on reward cards)," Held says. "If I do, I transfer my balance to a zero-percent card." Expensive purchases that a consumer will not be able to pay off right away should be put on a low-interest card.

The other pitfall consumers should be aware of with reward cards is that the points usually max out -- customers stop getting points after a certain amount of purchases in a year. Barbara O'Neill, an extension specialist in financial resource management at Rutgers University, says people who make lots of purchases with reward cards should keep a couple of the cards active to maximize reward opportunities in case they reach their cap on one reward card.

An aid to credit scores

Many people are reluctant to have multiple credit cards because they're afraid potential lenders will be scared off by a person with multiple credit lines and a high credit ceiling, figuring that lenders will assume such a person is more prone to debt.

"That's not how credit scores work," Davidson says. "They (lenders) value having a lot of established, old credit cards on your account. Having a lot of activity and responsible behavior reported to the bureaus is good for your credit score."

Continued: Staggered bill paying

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