Borrowers may often wonder if holding multiple credit cards can impact their CIBIL or credit score negatively. Well, the direct answer to this, as experts say, is that having multiple cards may not affect the CIBIL, but the lack of disciple in repayment, over utilising the credit limit and making multiple enquiries may impact it.
However, there’s a catch—it may be difficult to maintain these factors when a borrower has multiple cards.
Also read: 5 good credit card habits you should know
A CIBIL or credit score is basically a number between 300 and 900, which is calculated by the credit information companies in India. According to Radhika Binani—Chief Product Officer, Paisabazaar.com, if it is above 750, it is considered an excellent and good score. The score between 650 to 750 is an average and fair score and below 650 is a score which one needs to look out for.
The CIBIL score is evaluated and determined through a complex mathematical formula that is based on several parameters such as credit history, repayment history, utilisation, number of enquiries made and credit mix.
Among these, repayment history is one of the important factors in shaping the CIBIL.
Also read: How to choose the best credit card for you?
As per Binani, repayment history is whether the borrowers have paid their EMIs or credit card bills on time. Every missed payment is being recorded into the credit score and that impacts the credit scoring, in case the repayment record is not clean.
Now if somebody has multiple cards, holding it may be okay, but if he/she fails to make the payment of those cards on time, definitely the score will be impacted.
Another important factor in determining CIBIL is utilisation, which is simply that if borrowers have a credit limit of Rs 100, how much of that Rs 100, on monthly basis, they are using.
Binani explains this further.
“So, if borrowers use up to Rs 60, that means 60 percent utilisation and they can be seen as credit hungry. Whereas, if they are using only 10 percent of the credit limit, they seem to have enough credit whenever they need it. So, they are looked upon favourably,” she opines.
Now, let’s take the scenario of holding multiple cards.
As per Binani, a borrower could have 5 different cards but if the utilisation is going to be 10 percent, they are good. If it's going be 80 percent to 90 percent, it reflects they are very credit hungry. So, it all depends on, not the number but actually how much utilisation that they have.
“For example, just to make it clear, borrowers could have 5 cards with Rs 20,000 limit, adding up to Rs 1,00,000 or they could have one card with Rs 1,00,000 limit but if they are going to use 80 percent, they would still be penalised just as much if they were having only one card,” Binani explains.
So, this means holding multiple cards is okay, until and unless the borrower maintains a fair utilisation ratio.
Another factor in determining CIBIL is the number of enquiries one makes. The higher the enquiries, it shows the credit hungriness. So, the enquiry is something which one needs to watch out for.
Having two-three credit cards isn’t going to be hard on the score from any angle, experts say, but opting for too many cards, and triggering too many enquiries can be often severe.
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(Edited by : Ajay Vaishnav)
First Published: IST