No man’s credit is as good as his cash, goes an old saying. Yet credit cards
have found significant real estate in our wallets today. Should you get a credit card, isn’t the question anyone is asking anymore. The question now is, how many cards? One or multiple? How many credit cards
you have and how you use them could impact your credit score. Hence, it’s essential to make the right choice.
What’s your age
: The answer to the “one or many” question is relatively straightforward when we take into account the user’s age. Raj Khosla, managing director of MyMoneyMantra, says, “Millennials who are new to credit should get one card. Use it wisely, pay on time, and build a good credit history and score to be able to get future loans on better terms.” If you are new to credit, it’s better to learn the ropes with a single card. If you want to get another one, ask yourself if you need more. At times, you don’t need a second credit card
at all. Aditya Kumar, CEO, Qbera says: “The credit card
has to be used for discretionary spends and daily spends. Dues need to be paid off in full every month to avoid an expensive interest rate of around 40 per cent a year. Don’t use a credit card
as a loan. You may get an EMI on cards, but it will still be expensive compared to consumer loans or personal loans at 12-18 per cent.”
That’s for the youth, but what about others? Gaurav Chopra, chief executive officer (CEO), IndiaLends, says, “At 20, have a maximum of two cards, at 30, a maximum of four. At no point should the number of cards be more than that.”
Credit utilisation is the key
: How you use credit cards
is more important than how many card accounts you have. If your usage is low, obviously one card is enough. Kumar says, “If you are constantly too close to exhausting the limit, get one more card. If your balance is too high and close to the limit, your credit score will be affected even if you pay bills on time.” If you have a single card and use 95 per cent of the credit limit, it will bring down your credit score. However, if you have more than one card and use just 60 per cent of the credit limit, it will help maintain a good utilisation ratio (the percentage of available credit that you use).
A single card may not meet one’s needs, hence there are customised options. Convenience isn’t the only reason why people take cards; there are rewards too that you get. “One benefit of carrying multiple credit cards is that you can take advantage of various rewards schemes. You can use the card that gives the best travel benefits, online deals, cashback, discounts, and the like, depending on your requirement. If you know how to use multiple cards intelligently, you can get interest-free money, and lots of rewards,” says Khosla.
If you go for multiple cards, make sure you choose them based on your needs and can afford the fees. Too much balance on multiple cards means high credit utilisation, which will affect your score. Kumar says, “Different banks will report to credit bureau at different times. For instance, on one card, if your reporting day is 20th, the bank will report the balance that day to the bureau, not on 31st, when you have paid the card in full. The bureau will only see that you are carrying a huge balance on your cards.” Let your usage decide whether to have single or multiple cards, and don’t forget credit utilisation ratio.
Keep an eye on repayment schedule: Factors like your credit utilisation rate and your payment history tend to have a significant effect on credit score. Khosla says, “Get different billing cycles. If one is on the 30th, ensure the other is in the middle of the month. If you need to use a card on the 10th, do not use the one that offers you a bill in another 5-10 days. Use the one where the bill due a month later. If you pay in full on all cards, you can use multiple cards, get free benefits, and never pay interest. A single card will be easier to track and pay than multiple cards. With many cards, it can be hard to track all card programmes, bill dates, and the like. So assess your capacity to play multiple cards like a pro. If it’s too much to handle, it’s better to go with one. Chopra says, “If you don’t handle multiple cards wisely, you could start rolling over credit on all of them and get into a debt trap.” Other questions to ask yourself is the amount of fee you will pay on all these cards and whether the fee will eat into the value of owning multiple cards. Kumar says, “Premium cards offer benefits worth far more than the amount paid as fee. But, it’s worthless if you don’t use the benefits.” In case, you do want multiple cards, have a mix of one no-fee card, and other premium cards based on usage, like fuel card or travel card.