Is your credit score at risk? The effects of using multiple credit cardsnews24

The trend of individuals holding multiple credit cards has seen growth in the recent past. Infact, people who use credit cards extensively for their benefits maintain a credit card portfolio just like an investment portfolio. They review the portfolio regularly to evaluate which existing cards to close and which new credit cards to add.

While holding multiple credit cards can help you enjoy more benefits, you must be mindful of how they can impact your credit score. In this article, we will understand why people hold multiple credit cards, their pros and cons, and their impact on the credit score.

Why do people hold multiple credit cards?

Every credit card has its unique features and benefits. Usually, it is unlikely that a single credit card will meet all the requirements of an individual. Some of the reasons why people hold multiple credit cards include the following.

Discounts/cashbacks

Certain credit cards give a lot of instant discounts and cashback offers. People who prefer instant discounts over other card benefits go for these. In the last few years, cashback as a category has emerged, and banks are offering cashback credit cards to those who prefer them.

Complimentary benefits

Some people keep an additional credit card(s) for benefits like Buy One Get One (BOGO) offer on movie tickets, complimentary memberships (hotel loyalty programs, restaurants, food delivery, etc.), complimentary airport/railway lounge access, etc.

RuPay card for UPI payments

Some credit card users use RuPay cards for using UPI payments which is only possible with a RuPay credit card, this requires the need to keep an additional card for such payments.

Fuel credit cards

Most credit cards don’t give reward points for fuel spends. However, fuel credit cards make fuel purchases rewarding using them. Thus, some people keep an additional credit card for fuelling purposes as their fuel spends are higher.

Travel benefits

Travel-centric credit cards offer discounts on travel bookings, complimentary airport lounge access, complimentary access to paid hotel membership programs, the facility to convert reward points to airmiles/hotel loyalty points, etc. Frequent travellers keep an additional travel card to enjoy travel benefits.

Co-branded credit cards

Some individuals may keep a co-branded credit card to enjoy the benefits offered by the bank’s partner brand. Depending on the partner brand, these may include benefits on food delivery, dining out, utility bill payments, marketplaces, fashion, healthcare, travel, etc.

Impact of multiple credit cards on credit score

Some factors you must consider while using multiple credit cards include the following.

Hard enquiry for a new credit card

Whenever you apply for a new credit card, the lenders usually check your credit report. The enquiry reflects in the credit report. When you make too many credit card applications simultaneously or in quick succession, lenders may perceive it a sign of financial stress.

Increase in credit limit can lower the credit utilisation ratio

Every new credit card added will increase your overall credit limit. If your monthly expenses using the credit cards stay the same, it will bring down your credit utilisation ratio (CUR). The CUR measures the amount of credit used from the overall credit available. The lower the CUR, the better. Thus, multiple credit cards might help you lower the CUR, and therefore, contribute towards improving your credit score.

Change in secured and unsecured credit mix

Secured loans include home loans, vehicle loans, loans against security, etc. Unsecured loans include personal loans, credit cards, etc. Every new credit card added will increase the proportion of unsecured credit, provided no secured loans are added. Hence, while holding multiple credit cards, you must maintain a good balance between secured and unsecured credit.

Timely payments for all cards

Timely EMI repayments from your credit card and monthly bill payments have the highest weightage in your credit score calculation. The more the number of credit cards you hold, the more the number of payment dates you need to track. A single delayed payment may impact your credit score negatively. You may use the auto-debit facility for your monthly credit card bill payments. Choose an auto-debit date which is at least five days before the payment due date. Timely bill payments will help you maintain or increase your credit score.

Is it okay to have multiple credit cards?

While there are many credit cards with unique benefits available in the market, you must choose the one that suits your needs. Balance your use of credit utilisation and ensure you don’t become heavily depended on credit cards which might end up affecting your credit score.

Use multiple credit cards judiciously

Finally, with multiple credit cards, you must avoid making unwanted purchases just because of attractive offers on your credit card. Such purchases can strain your finances or put you in a debt trap. Hence, use multiple credit cards judiciously for essential spends, ensure you make timely payments, and enjoy their benefits.

While using multiple credit cards can increase your benefits, you must understand their impact on your credit score. Knowing about these factors can help you maintain or improve your credit score.

Sachin Seth, Chairman CRIF High Mark and Regional MD CRIF India & South Asia