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I've heard that getting a second credit card can help your credit rating. I am wondering if this is indeed true. If so, why is the case?

Much thanks in advance!

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This very much depends how you use that second line of credit and what your current credit is.

  • If you max it out and then do not pay then it will hurt your credit.
  • If you max it out and pay the minimum but currently have a low credit score it will help. If you already have a 700+ rating then it will hurt it.
  • If you Never use it then it will have little impact on your rating but could cause problems if your available credit exceeds 50% of your income.
  • If you use it regularly but pay it off every month then it should improve your credit rating.

There are of course many more combinations buy you can probably infer the impact based on these cases.

Your credit score is based on your likely hood of being profitable to a creditor should they issue you credit. This is based on your history of your ability to manage your credit. Having more credit and managing it well shows that you have a history of being responsible with greater sums of money available. If you use the card responsibly now then you are more likely to continue that trend than someone with a history of irresponsibility.

Having a line but not using it is not a good thing. It costs the creditor money for you to have an account. If you never use that account then you are not showing that you can use the account responsibly so if you are just going to throw the card in a safe and never access it then you are better off not getting the card in the first place.

2

No. Getting more credit lowers your credit utilization ratio (if you don't use it), which raises your credit rating, this can also be done by asking for a higher limit on your existing credit card.

Also, there is a chance that the company you got your first card from won't pull your credit a second time when they go to the underwriter. As any extensions of credit lower your credit score, although the credit utilization ratio is weighted more heavily.

  • You say no... but then contradict yourself by saying it raises your credit rating... I am not sure what you actually meant here – user4127 Sep 18 '12 at 15:31
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Besides your credit score, there are other smart reasons to have a second line of credit. (Your credit score doesn't affect you the majority of your life, but when it does whoooooo boy does it.)

  • Should the first bank you have credit with create or find a clerical error, a second line of credit can provide a cushion while you sort it out with the first

  • Should physically damage a card, or have it stolen, having a second backup at home will be helpful as you wait for a replacement.

  • Getting a second line of credit with a different institution than your first allows you the flexibility to cancel one and move your business should the deal become unfavorable to you.

  • Multiple lines of credit in of itself is a plus to your credit score (albeit a small one)

  • You can organize your finances. One card handles the recurring payments in your life, the second incidentals. The expected activity type might make it easier to detect fraud.

When you get your second line of credit, get it from a different institution than where you have any other business now. (A credit union if you can, or a small local bank). Make sure there is no annual fee, and if there is a reward, be certain it is worth it. Cash back is my favorite because I can spend cash where I like, whereas "points" have to come out of product in their catalogs. Lower interest rate is best of all. Even though you always plan on paying it off every month like clockwork, you might one day run into an issue where you cannot. Lower interest rate becomes very important in that plannings scenario.

  • Thanks! Just FYI, what are the life situations like that make you say: "(Your credit score doesn't affect you the majority of your life, but when it does whoooooo boy does it.)" that is, what are the creditors looking at when deciding if I can get a loan for a house say? are they looking they at my credit card score? or other things too? – user7186 Sep 19 '12 at 0:03
  • Loans, some jobs in some states, auto insurance, existing credit cards. You can argue it is ludicrous, and I wouldn't disagree, but it happens. – MrChrister Sep 19 '12 at 1:20

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