You have probably seen and used one of those thin rectangular plastic or metal cards for payments. A bank or financial service company issues credit cards to eligible customers.
No law prohibits any eligible individual from having more than one credit card. If you do not understand how a credit card works, they usually have a pre-approved credit limit a customer can use to make purchase transactions on goods and services.
Credit cards can make it possible when you need to purchase or pay a bill and are short of funds. It is also a great avenue to build your credit score.
How credit card works
Whenever a credit card holder makes a purchase, the holder’s details are sent to the merchant’s bank.
The bank requests authorization from the card issuer to process the transaction, and once it is approved, the transaction is marked successful.
By law, credit card issuers are required to offer a grace period of at least 21 days before interest starts accruing on the amount of the approved purchase.
Paying off the debt before the grace period elapses is usually recommended to avoid paying interest.
Credit cards typically charge a higher annual percentage rate (APR) when compared to other consumer loans.
Types of credit cards
- Reward credit cards
- Cash-back credit cards
- Travel credit cards
- Business credit cards
- Student credit cards
- Secured credit cards
- Co-branded credit cards
- Store credit cards
- Credit builder cards
- Balance transfer cards
- Purchase cards
- Money transfer credit cards
Are there any benefits of having multiple credit cards?
Credit cards are the most common first credit experience for many young Americans. Over 73% have a credit card by the age of 25.
An Experian report indicated that people have at least three different credit card accounts on average.
About 13% reported having at least five cards, while 191 million have at least one credit card account.
The pros and cons
There is no clear answer on whether having multiple credit cards is good or bad. What is most important is how you use it.
If well managed, multiple credit cards can help your credit score. On the flip side, it can be disastrous for your credit score if you cannot repay your credit card debts before the due date.
A Forbes Advisor survey from February 2023 reports that 22% of credit card holders are either very unconfident or somewhat unconfident about paying their next credit card bill in full.
Requirements for getting a credit card
To apply for a credit card, you must fulfill the following requirements to be eligible;
- At least 18 years old. However, most credit card companies consider people 21 and above.
- Verifiable income source
- Physical address – can be either home or business address
- Social Security Number (SSN) and/or Tax Identification Number (TIN)
- Credit score
Things to consider when choosing a credit card
Fees charged
The interest charged by credit card issuers varies. Do your research and ask questions to select the one that charges the least interest rate. Some credit cards also offer loyalty rewards. If you shop a lot, consider them.
Aside from the interest charged, credit cards may also come with other fees;
- Annual fee: Premium cards may come with a yearly fee but mostly over benefits that compensate for the amount charged.
- Balance transfer fee: Some companies charge nothing, while others may charge between 3 to 5% for every outstanding balance transferred to another credit card.
- Late fee: Certain amounts are charged if the cardholder fails to make the minimum payment by the due date.
- Foreign transaction fee: This is charged if the card is used for transactions outside the country where it was issued. It is usually charged if the transaction denomination differs from the credit card issuer’s local currency.
Credit score requirements
Banks and financial companies usually conduct a hard credit inquiry after verifying a credit card’s applicant identity. Individual lenders have specific requirements they consider. While some may consider applicants with lower credit scores, others may require higher.
A credit score of 700+ will qualify you for most credit cards.
Credit limit
This indicates how much you can spend with the credit card until repayment of the outstanding balance.
The card issuer may set this based on your credit score. Check the company’s terms and conditions to see their minimum credit limit. You may also ask the customer support of the company during your application.