26-Mar-2016 written by : FSI-Team
Credit cards have fast become a preferred choice of payment for users the world over, with over 72 percent of consumers holding credit cards. Closer home, India boasts of over 3 crores of credit cards users, and the numbers only continue to rise. Where consumers initially held only one card, today the average number of cards per person is close to 4. This means that cards have become more competitive as the usage has increased, leading to its own share of pros and cons.
Given that most cardholders have more than one card tucked away in their wallets, let’s take a look at how holding multiple credit cards can work in your favour.
Credit utilisation limit – Firstly, there’s the credit utilisation limit to be considered. This is nothing but the total credit limit across all your credit cards, which is the amount you can spend month on month. It is always a good practice to maintain a low credit utilisation limit, and this is where having multiple cards can come in handy. The ideal usage ratio recommended is 30 percent, anything higher and it may not reflect too well on your credit report. Hence, if you hold more than one cards, your overall limit is higher, and if you plan your spends such that you distribute them over your cards, your limit will remain safely within an acceptable range. Maintaining a modest ratio is critical to your credit score, as it is a significant factor that is taken into account when deriving the report. A high ratio to a lender signifies that the cardholder is likely to be insolvent and hence requires using a high amount of debt on a regular basis to stay afloat.
Rewards and benefits – All cards provide cardholders with attractive rewards and offers, and these can be maximised to ensure you get the best out of using the card. For instance, some cards are targeted specifically at women, providing additional benefit on shopping. Others can offer attractive air miles on frequent air travel, or those who use their cards and fuel up frequently would do well to opt for a card that offers cashback on fuel surcharge. Other cards simply offer good old reward points, which when accumulated, can be used in lieu of cash to even pay off your credit card bill. Some cards also offer bonus reward points on joining, which mean that right at the outset you increase your purchasing power.
Hence, you can avail of a variety of rewards across your cards, provided you play them right. Choose the card that gives you the most benefits, relevant to your purchase.
Financial emergency – This is something that one cannot just predict, and can unfortunately occur at any time. While it is good to have liquid cash handy in your bank account, a credit card too does not go amiss. Take for instance emergency hospitalisation either for yourself or a dependent. With rising medical costs, it sometimes becomes necessary to use a credit card until your medical insurance kicks in, or you in any case need to make the payment yourself. A credit card with a sizeable credit limit is nothing short of a boon in this scenario.
Damaged card – Ultimately, a card is nothing but a piece of plastic and has components that can get damaged over time. If this happens, your card will not be read by a scanner and hence is rendered unusable. Until the time that a new piece of plastic can be despatched to you, having an alternate card can come in handy, especially if there is an important purchase dependent on the card to be made, that cannot be put off until a new card arrives.
Lost card – Unfortunately, there is always the possibility that you lose your card. Until such time, it is always good to have a back-up plan – or in this case, a credit card – in place, so that you are not stranded in case of such an eventuality. This becomes more critical when for instance you are on vacation, whether within the country or overseas, and cannot afford to be strapped for cash. Until such time that your card can be replaced, having another card can come in very useful.
Remember, though when you use multiple credit cards that they come with a figurative if not literal price. The way you utilise a credit card has a telling and far-reaching consequence on your credit history. Timely (and ideally full) payments towards credit card outstanding are what will keep your CIBIL score high. Another thing to be wary of is using your credit limit to the maximum extent, which can also reduce your score drastically.
Hence, instead of using credit cards, do the opposite – make credit cards work for you. With these tips and tricks, increase your purchasing power without compromising on your credit score or financial fitness.