Credit cards are a necessity of modern life. For better or worse, they come with advantages – and disadvantages – many of which we have covered previously in our articles. Given the sheer convenience of carrying a small plastic card instead of lots of cash, and the ease of settlement as compared to carrying out a lot of cheque-based transactions, most of us would definitely want to have at least one credit card.
But what about having more than one?
In the days of the credit boom, when Banks offered credit cards like handing out flyers at a shopping mall, a lot of working professionals had no less than half-a-dozen credit cards jangling in their pockets. Apart from the fact that this made wallets so fat it might have been better to just carry cash instead, the absurdity of the situation (imagine keeping track of that many due dates itself) led to a growing disgust with plastic money and once debit cards became mainstream, fewer people used credit cards at all.
As credit becomes cheap again, however, the credit card phenomenon is back, and Banks are lining up to offer them to us.
Here are some things you should think about before you take the plunge for your second – or third or fourth – credit card.
1. Credit limit
Is the credit limit on your primary card too low for your needs? Sometimes the issuing company sets a limit basis your income in the year you first applied for it and do not revise it, while your needs grow as your income does. In that case, a second credit card would automatically mean an increased credit limit.
2. Expense management
Many credit cards tie up with petrol pumps / supermarkets to offer concessions or rebates in one form or the other. If you expect to regularly avail of these offers, it makes sense to pick up the credit cards based on them.
3. Reward point management
Some credit cards have a cap on the amount of reward points you can earn in a month. If you find that you are crossing this cap, it might make sense to spread your expenses across more than one credit card.
4. Improving your credit score
In calculating your credit score, one of the aspects that CIBIL looks at is ‘credit-utilisation ratio’. This measures how much of credit available to you are you actually using over a period of time. So if your monthly expense is Rs. 20,000 and you use a credit card with a limit of Rs. 40,000, your utilisation ratio is 50%. If you have two credit cards with the same limit and you spread your expense across these two, the utilization ratio will drop to 25%.
5. Your credit habits are important.
On the other hand, keep in mind that a credit card is, at the end of the day, a tool for postponing expenditure and a convenience at best. If you find that your expenses are difficult to keep in control when you have access to credit, having more than one credit card will only work against you.
6. You need to be good at keeping track of dates
Credit card companies are notorious for charging high fees for late payments. The more due-dates you have to worry about, the more likely it is that you will end up paying these charges. So if you typically have difficulty keeping track of your payments, keeping more than one card is not a good idea.
To summarize, before deciding whether to bite at the offer to accept multiple credit cards, consider which of these six factors are more likely to impact you before saying ‘yes’ or ‘no’.