So You Only Have One Credit Card. Is That a Problem?

Thirty percent of Americans have just one credit card, according to The Motley Fool Ascent's research. Many feel that's all they need. It enables them to build their credit history, pay for purchases online, and earn rewards.

But there can be advantages to having multiple cards in your name. Below, we'll look at some of the most important considerations to help you decide what's right for you.

Identity theft

Many credit card users experience fraud at least once in their lives. Often, you're not at risk of owing the card issuer for a thief's purchases as long as you notify it of the situation promptly. But the company will probably close your card and reissue you a new one to prevent further theft.

This could be problematic if you don't have another credit card to use in the interim. You'll either have to fall back on cash or a debit card, and not everyone has this on hand. You also won't be able to earn any rewards on purchases while you're waiting for your new card to arrive.

In this case, having a backup credit card is helpful. You can have a primary card you use for most purchases and a backup card you rely upon if your primary card becomes lost or stolen.

Creditworthiness

How you handle borrowed money affects your credit score, and a high credit score is key to securing affordable interest rates on loans. Several factors influence your score, including your credit utilization ratio.

This is the ratio between the amount of credit you have available to you and the amount you use each month. For example, if you have a $1,000 balance on a card with a $5,000 limit, your credit utilization ratio is 20%. Ideally, you want this number under 30% to keep your credit score high.

It's not impossible to do this with a single credit card. You could limit how much you charge to the card or pay your bill off twice per month. Credit card issuers only report your balance to the credit bureaus once per billing cycle, so this will make it appear as though you spent less than you did, reducing your credit utilization ratio.

But you can always just open another card account, too. This will give you access to an additional line of credit, which reduces your credit utilization ratio. You don't have to use that credit if you don't want to. Just having it on your credit report boosts your score.

Earning rewards

Every rewards credit card has its own rewards formula. Some pay a flat rate, often 1% back, on all purchases. Others have bonus categories that either go year-round or rotate quarterly.

You want a primary credit card that aligns well with your spending habits so you can earn the most in rewards. For example, if you use your credit card most often for gas and groceries, you might want a cash back card that offers bonus rewards on these purchases.

But it might be possible to earn rewards more quickly if you have several cards that you can use strategically. Perhaps you use your gas and grocery card primarily, but you have another card that offers bonus rewards on dining out that you use at restaurants.

If you prefer to keep things simple, there's nothing wrong with sticking to a single card as long as you have a backup plan for what you'll do if you lose access to that card. Keep some cash with you or have a debit card handy so you still have a way to make purchases in a pinch.