In today’s world, credit cards have become a staple for financial transactions, making purchases more convenient and providing access to various rewards and offers. Many people have more than one card: one for shopping, another for fuel, and maybe even one for exclusive lounge access. While the ease of using multiple cards is appealing, it also means managing multiple bills, which can lead to financial stress if not handled carefully. Some may suggest cutting down to just one card, but there are benefits to maintaining multiple cards. Let’s explore why having more than one credit card might be a smart financial strategy.
Why Multiple Cards?
Credit cards are useful for various reasons, from shopping to fuel rewards. Different banks and credit card issuers offer a variety of benefits, such as discounts, cashback, and rewards points. For example, some cards provide discounts on specific types of purchases, while others offer travel perks. As long as you pay off your balance each month, these rewards can add up, making it worthwhile to keep several cards active.
Points to Consider with Multiple Credit Cards
However, holding more than one credit card requires mindful management to avoid overutilization and missed payments, which can impact your credit score.
1. Credit Utilization Ratio (CUR):
The CUR is the percentage of your available credit that you’re using, which is crucial for your credit score. A CUR above 30% can negatively impact your credit rating, so having multiple cards can help spread out spending. For instance, if you have a credit limit of ₹1 lakh on one card and ₹2 lakhs on another, you shouldn’t exceed ₹30,000 on the first and ₹60,000 on the second. If you cancel one card, your CUR may increase, especially if you rely on one card for all your expenses.
2. Credit Score Considerations:
A good credit score is essential for securing loans and favorable interest rates. The utilization ratio and timely payments significantly impact your score. Keeping more than one card can help you maintain a lower CUR, thereby positively influencing your score and loan eligibility.
3. Maximizing Rewards:
Each credit card offers unique rewards and benefits. By holding multiple cards, you can take advantage of a broader range of deals, from cashback on groceries to discounts on flights. If you frequently shop online or travel, the rewards from multiple cards can save you money and provide additional perks.
When to Consider Canceling a Card
If you’re thinking about canceling a card, evaluate each card’s annual fees, credit limit, and the rewards it offers. Consider canceling cards with high fees or those you rarely use. However, be cautious of how it impacts your credit score. Canceling a card reduces your overall credit limit, which can increase your CUR if your spending remains the same. Always ensure that any cancellation doesn’t negatively affect your score or financial standing.
Final Thoughts
Credit cards are powerful financial tools when used responsibly. With multiple cards, you can access a wider range of rewards and maintain a healthier CUR, but it also requires careful management. Make sure to review the benefits and costs associated with each card regularly, and always keep your spending within limits. With responsible management, having multiple credit cards can enhance your financial flexibility and offer significant perks.
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