More the merrier

Adhil Shetty on the benefits of using multiple credit cards 

  • Published 10.09.18

Some people may be at unease with the idea of owning multiple credit cards. It is true that one needs to be financially disciplined to be able to balance multiple cards. Each card comes with its own charges, billing cycles and terms and conditions that one must be aware of. However, used with discipline, multiple credit cards can provide you greater savings and benefits, a higher spending power, and the ability to maintain a great credit score that allows you to access attractive loan offers.

Spend more

The greatest advantage of a credit card is to be able to buy now and pay later. Credit cards basically allow you to take bite-sized loans on demand. You can transact online, or with any merchant with a swipe machine. Your credit purchases in a month are itemised in your monthly statement. You must then repay the credit card company for your purchases. You can do so in the interest-free period (usually between 30 to 60 days for most cards) and avoid paying interest on the balance or penalties for late payment.

Naturally, if you have multiple credit cards, your ability to spend would be higher. If you have cards from multiple banks, you can carry out a greater variety of transactions, and earn a wider range of benefits and rewards. Owning multiple credit cards is especially useful in a money crunch where you can pay for your necessities instantly instead of having to take a loan or borrow from friends.

Improve your CUR

The credit utilisation ratio (CUR) refers to the amount of credit you use against the credit limit available to you. For example, if your card limit is Rs 100,000 and you spend Rs 40,000, your CUR is 40 per cent. The CUR weighs heavily in the computation of your credit score, a three-digit numerical rating of your creditworthiness. Banks and lending institutions refer to your credit score while evaluating your loan or credit card application. In essence, the higher credit you use every month, the more credit-hungry you appear, and the lower your credit score will be. So how does owning multiple cards help your CUR? It's ideal to keep your CUR at around 20-30 per cent. Let's say you had two cards each with a spending limit of Rs 100,000. Instead of spending Rs 40,000 from one card, spend Rs 20,000 on each card, thus bringing down your CUR on each card to 20 per cent. A lower CUR leads to a better credit score, which helps you to be eligible for more loans and credit cards, if needed.

More savings and rewards

One of the biggest reasons why people opt for multiple credit cards is because of the range of benefits, cashback, deals and discounts they become eligible for. For example, one credit card advertises a one-time opportunity to get Rs 8000 off on a premium smartphone brand. Another offers you accelerated air miles for being loyal to an airline. Another provides you access to golfing lessons. Another may provide you co-branded benefits from a football club. Therefore, an additional card may enable access to these benefits and deals that help you achieve the lifestyle you seek at subsidised costs.

Let's understand this better with another example. If you're a regular international traveller, it would be most useful owning a travel card that provides you air insurance, free tickets, airport lounge access, or vouchers for travel bookings.

Remember to get only such cards that provide you the benefits you seek. If you aren't a golfer, don't get a golf card. But if you like eating out, get a card that helps you get fine dining experiences at discounted rates.

Transact without gaps

Multiple cards mean you can transact with more vendors and merchants. Let's say one of your cards was declined for some reason. You can flip out the other card and continue to get the goods and services you need without interruption. This is especially useful while travelling abroad. There is always a degree of financial vulnerability when you're in a foreign land. But with multiple cards, you have constant access to funding.

How many cards?

Is there an ideal number of credit cards to own? Probably not. You can own as many as you want, as long as you're eligible for them. But if you're going to own multiple cards, it would be useful to diversify them to get the best set of rewards for your lifestyle and spending habits. Lastly, you should be extremely disciplined with your money in order to juggle multiple cards. You should be aware of due dates, interest rates, penalties, charges etc. on all your cards, and also be on top of how much spend you've made on each card every month. Armed with this knowledge, you can avoid having unpleasant surprises, or having to pay penalties and the steep interest rate on your card dues.

When to apply

If you're looking for multiple credit cards, don't apply for them all at once. Each time you apply for a new loan or credit card, the bank or lender initiates an enquiry into your credit history to assess your creditworthiness. Such a query is termed a "hard" query. With each hard query, your credit score lowers a bit. So multiple applications at once can be bad for your credit score. Instead, get one card. Use it to its max, make timely repayments, and develop a history of financial discipline. When you find that card limiting you in some way, get in touch with your card provider to explore the possibility of upgrades. If that doesn't help, shortlist some cards that help you get the lifestyle you need, and apply for it.

Impact on credit score

For the sake of a healthy credit score, maintain adequate gaps between each of your loan or credit card applications. In between them, pay your EMIs and card dues in a timely manner so that your credit score is rejuvenated again before you apply for a new product.

The writer is CEO,