With the significant rise in credit card usage, credit card companies come up with tempting card offers for investors, by offering freebies and exciting perks. Customers already possessing credit cards, often find themselves taking up such offers and ending up with multiple credit cards. Having multiple credit cards can either help or hinder your credit score, depending on how well you manage them.
Let’s understand what are the benefits and pitfalls of having multiple credit cards:
Why would one need more than one credit card?
Credit Limit: With each new credit card you get, your credit limit increases. Having more than one credit card can actually help your credit score by making it easier to keep your credit utilization ratio low. If you feel that your credit limit on the single card doesn’t suffice, then you may need more than one card. Multiple credit cards help you afford not only your everyday purchases but also your emergency expenses.
Nevertheless, remember, if you have a good payment history, credit card companies reward you by enhancing your credit limit, which may eliminate the need to go in for an extra card. So make sure you make your credit card payments on time- the benefits are manifold.
Improves credit score– The only key to having a good credit score is to use your credit card effectively. Those who have several credit cards and are still able to make all payments on time, are likely to have a good credit score. This would also increase their credit worthiness and open access to more credit opportunities.
Convenience: At times, merchants do not accept all cards, for example, some may accept only Visa or MasterCard. So if you have only one card, you may face inconvenience. Additional credit cards work as financial backup for emergencies.
More rewards and cashbacks: Each credit card offers its own benefits and rewards. There are some cards which provide maximum privileges or a good deal if used for a particular purpose. Travel credit cards offer benefits for travelers, while a fuel credit card offers benefits to daily commuters. Multiple credit cards give customers access to more card-related perks and benefits, which may be in the form of cashbacks and rewards. Choosing the right mix of credit cards involves taking a look at where you spend most of your money.
What are the drawbacks of having multiple cards?
Risk of missing payment dates: Maintaining a clean credit history is increasingly important. The probability of missing a payment date is higher if you possess several credit cards as you will have to keep track of the payment date of each of the credit cards. If you default on your payments, your credit history will be get affected, which will adversely impact your credit score and your ability to get loans in the future.
Increased debt: Having access to more credit can often be tempting. Credit cards give you purchasing power, and if you are impulsive, then having multiple cards can prove to be a recipe for disaster, as you may spend without thinking of your repayment capability. If cardholders are not cautious, it can easily lead to overspending and accumulation of debt.
Effort: Managing credit cards is an effort because it requires a proper schedule, which you need to figure out and keep a tab on. You need to keep track of the payment dates, the interest free period and the credit limit. This can get overwhelming and missing the due date for even a single payment can have an effect on credit scores.
There is no clear cut method that determines how many cards are enough. One may not suffice, because you need a backup. At the same time, having too many cards requires you to act responsibly, so that you do not tarnish your credit history and find yourself in a financial mess. So the next time you receive a call for a credit card, ask yourself whether it adds any value for you and whether you will be able to manage it responsibly!
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