Personal Finance

Pros and cons of having multiple credit cards

Updated : December 03, 2020 08:41 AM IST

The fear of stepping into debt traps often refrain existing credit card holders from applying for an additional card.

However, for those who are financially disciplined, the pros of having multiple credit cards would always surpass the cons.

Authored by Sahil Arora

The fear of stepping into debt traps often refrain existing credit card holders from applying for an additional card.

However, for those who are financially disciplined, the pros of having multiple credit cards would always surpass the cons.

Pros

Earn higher benefits

Credit card issuers design credit card reward point programs keeping in mind the different spending patterns of various consumer segments.

For example, travel credit cards suit, frequent travelers, as they offer free air miles, free lounge access, hotel vouchers and higher reward points on travel-related spending. Similarly, fuel credit cards will suit those incurring sizable spend on fuelling expenses whereas credit cards co-branded with retail or online shopping brands accrue higher benefits on spends made with the partner online or shopping brands.

Thus, those incurring higher spending on multiple spending categories will accrue higher benefits by spreading their spending across multiple cards based on their reward point structure.

Improve credit score

Availing multiple credit cards helps in reducing your Credit Utilization Ratio (CUR). CUR is the proportion of the total credit limit utilized by you. As a CUR of more than 30 percent is considered as a sign of credit hungriness, credit bureaus will reduce your credit score by exceeding the 30 percent CUR mark.

On the other hand, a consistent track record of maintaining CUR below 30 percent mark is considered as a sign of credit discipline, which leads credit bureaus to increase your credit score.

For instance, assume your credit card’s limit is Rs 1 lakh and you used it for making transactions worth Rs 40,000 in a month. Your CUR for the month would be 40 percent. Now, if you had another credit card with a limit of Rs 80,000, your CUR for the same month would have been 22.22 percent. Thus, having multiple credit cards can assist you to contain your CUR within 30 percent and steadily build your credit score over the long run.

Make most from interest-free period

The interest-free period of a credit card transaction refers to the period starting from the day of the credit card transaction to the due date of repaying outstanding dues of that transaction’s billing cycle. No interest is charged on a credit card transaction (except for cash withdrawals) as long as it is repaid within the interest-free period.

The interest-free period of credit card transactions can range from 18 to 55 days, depending on the date of the credit card transaction. Having multiple credit cards will allow you to spread your big-ticket spends in such a manner that each of those transactions avails maximum possible interest-free period.

Overcome caps on reward points

Many credit cards cap the number of reward points that can be earned within a billing cycle. Having multiple credit cards will enable you to route your transactions via other credit cards on reaching the cap on reward points on your primary credit card.

Backup in situations of loss/theft of your primary card

It generally takes a few days to get the new replacement card in case of loss or theft of your credit card. Having multiple credit cards helps in such situations to divert your card spends to other credit cards and thereby, keep your liquidity intact.

Cons

Tracking card spends

Multiple credit cards result in the generation of multiple bills and due dates. Those having trouble remembering due dates and repayment schedules have high chances of missing out on repayments. Doing so would attract steep finance charges on the unpaid bill amount.

Failure to repay the minimum due amount will additionally cost a late payment fee and reduce your credit score. To avoid such scenarios, issue a standing instruction in your credit card to enable automatic deduction of your dues from your savings bank account.

Risk of spending beyond repayment capacity

With credit cards offering enticing discounts and offers round the year, those lacking financial discipline often end up spending extra, just to avail such discounts and offers. With multiple credit cards, the risk of spending beyond one’s repayment capacity becomes even higher.

Applying for an additional credit card will reduce credit score in the short run

Every time you apply for a new credit card, the card issuers pull out your credit report for evaluating creditworthiness. Such issuer-generated credit report fetches are termed as hard inquiries, which leads credit bureaus to reduce your credit score by a few points. However, this reduction in credit score is just for the short term. As one constantly repays the outstanding dues on time and maintains CUR within 30 percent, the fall in credit score can be steadily recovered.

Sahil Arora is Director at Paisabazaar.com

Pros and cons of having multiple credit cards

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