A long-time reader emailed me with a question that I thought would be worth answering here, as I know many people probably have the same issue.
How do you decide when to apply for additional credit cards?
A reader in his mid-20s has excellent credit and got the Chase Sapphire Reserve® Card (review) last year. He has over 100,000 Chase Ultimate Rewards points that he wants to continue building. He says he can basically get any card he wants, but he’s not sure where to go from here:
- He’s not a big credit card spender, so realistically he won’t split his spending across a dozen cards
- He wants to take advantage of some of the great credit card bonuses, but (understandably) doesn’t want to open and cancel cards or pay excessive annual fees.
Once that is clarified, the question arises as to how you decide whether to apply for a new card and which offers you would like to use?
My philosophy on building a credit card portfolio
Let me start with an important warning: Only apply for additional credit cards if you can use them responsibly. If you end up overspending and paying finance fees, you probably won’t save much money. With that out of the way, I have two general considerations for when you have good credit but a limited number of credit cards.
First of all, when it comes to credit cards (and most things in life), slow and steady wins the race. If you’re starting out with just one credit card, I don’t recommend suddenly applying for 10 credit cards at once, as this can significantly damage your credit score. This is especially true at the beginning of your credit card experience when you only have one or two cards.
Second, owning lots of credit cards can actually improve your credit score in the long run. I have over two dozen credit cards and my credit score is nearly perfect. You want to be sure you make your payments on time, but beyond that, owning multiple cards can improve your credit score:
- Having multiple credit cards increases your total available credit limit, which may help you lower your credit utilization ratio (the percentage of your available credit limit that you use), which accounts for 30% of your credit score.
- Having multiple credit cards over a long period of time can have a positive impact on the average age of your accounts. And the more cards you have, the less the average age of your accounts is affected by opening a new card. This accounts for 15% of your credit score.
The only other consideration is that applying for a credit card will result in an inquiry to your credit report, which may temporarily lower your score by a few points. However, in the long run, this should not be a problem.
How do I decide which cards to open?
If I had good credit but only one credit card and a relatively limited credit history, I would probably apply for a card or two as soon as possible. I recommend doing this soon because, as I explained above, it will help further establish and stabilize your credit profile.
I wouldn’t necessarily focus on the cards with the biggest welcome offers, but rather on cards where I see value and can see myself keeping them long-term. And if I wasn’t sure the cards would have value for me long-term, I would probably consider a card where I know there is a downgrade option after a year.
For example, it would be ideal to have a card with attractive benefits that more than justify the annual fee. But it could also be a card with no annual fee, because it’s great to have cards that you can keep for years for free and thus help increase the average age of your accounts.
The way I see it, there are different strategies you can pursue here…
Since the reader already has the Chase Sapphire Reserve® Card, it might be worth getting the Chase Freedom Unlimited® (review) with no annual fee. The card offers at least 1.5x points on all purchases, making it one of the best cards for everyday spending. This could be a great card to keep long-term to build the reader’s credit score, and it could also help maximize spending to earn more Chase points.
Hotel credit cards are also easy to justify in my opinion. For example, I would consider getting the IHG One Rewards Premier Credit Card (Review) with a $99 annual fee, which offers a phenomenal welcome bonus and an anniversary free night voucher, IHG One Rewards Platinum status, and more. This should more than justify the annual fee in the long run, but if not, it should be possible to downgrade to the IHG One Rewards Traveler Credit Card (Review) with no annual fee.
I also think it’s good to diversify card issuers a bit, so if it were me, I’d consider the duo of the Citi Strata Premier℠ Card (Review) with a $95 annual fee and the Citi Double Cash® Card (Review) with no annual fee. The two cards complement each other well and offer great bonuses.
You can even transfer Citi ThankYou points to some of the same partners, like Chase Ultimate Rewards. If you decide after a year that you don’t want to pay the annual fee for the Citi Premier Card, you have downgrade options.
Of course, there are many other options, but this is just an example of some of the different paths you can take.
Conclusion
Having good credit and getting your first “big” credit card is exciting, but deciding what to do next can be difficult, especially if you’re trying to maintain (or even improve) your credit score.
Having more credit cards (and using them responsibly) can certainly improve your credit score over time, but I’d recommend taking it slow and steady. If I only had one or two cards, I’d recommend applying for one or two more that you plan to keep long-term. These could be cards with no annual fee or cards that offer perks that more than make up for the annual fee.
Then see how it goes – you’ll probably be pleasantly surprised at how your credit score and overall credit profile develops, so hopefully after another six months or so you’ll be able to apply for a few more cards. But I think this is a good start.
If anyone has similar experiences or tips, feel free to share them below!
