In a recent episode of the Personal Finance Hour, JD and I had the great pleasure of interviewing Liz Pulliam Weston  about credit and credit scores. We talked about a lot of thing but one subject I wanted to repeat was that of credit card diversification.
Credit card diversification means you should have multiple cards from multiple issuers so that if something “bad” were to happen at one, you aren’t significantly affected. I have several credit cards for cashback reasons and they, by luck, happen to be from several issuers. I have an AMEX TrueEarnings , a Citi mtvU card , and several others I use infrequently. Why should you have several?
Unpredictable Credit Limit Reductions
With the economy reeling and credit card companies struggling to find a way to reduce risk, generate a profit, and avoid the gaze of the government, they’re doing some pretty shocking things. You probably heard about the story of Kevin Johnson, a 29-year old black entrepreneur with a perfect payment history and high credit score, who had the credit limit on his AMEX slashed . He didn’t miss a payment, with AMEX or anywhere, he simply shopped at the wrong place.
There’s also the practice of balance chasing . It happens when you make a large payment on an existing credit card debt and the company cuts your credit limit to just above what you still owe.
Overzealous Fraud Monitoring
In the episode, Liz Weston talked about how she once went clothing shopping and the fraud monitors at her credit card company froze her account for suspicious activity. She wasn’t traveling across the country, she was simply buying clothes.
Now imagine this scenario if you’re traveling internationally and you only have one credit card? We will be using a Capital One credit card, the cheapest and best international credit card for us , when we travel abroad but we will have backups.
Of course, one way to avoid all this is to live an entirely cash-based lifestyle.
(Photo: andresrueda )