Credit cards as a mode of payment in India are often perceived to be a gateway to debt traps and overspending. This not only leads many people to stay away from availing and using a credit card, but even the existing credit card users also end up refraining from applying for another credit card due to the fear of ending up overspending and eventually falling into a vicious cycle of bill repayment failures and at worse, a debt trap. However, what all such individuals fail to realize is that the role of credit cards in financial life, whether as a boon or bane, entirely depends on one’s discipline towards usage and repayment of the credit card.
Let’s understand the various aspects associated with holding multiple credit cards:
Should you hold multiple credit cards?
The number of credit cards you should hold depends on factors like your spending pattern and frequency of spends. Holding multiple credit cards of various or a single card like SBI credit card gives you advantages such as higher benefits on spending across multiple cards based on their reward point structure, helps spread out expense across the month as per each card’s interest-free period, serves as a backup in case of loss/theft of primary card and improves your credit score upon maintaining CUR below 30%.
However, the key to maximizing these benefits lies in the disciplined usage and repayment behaviour of credit cards, as this would ensure that the benefits always outweigh the associated cons. Those lacking financial discipline and taking multiple credit cards without requirement may get pushed towards a debt trap if they lack financial discipline and keep on piling up outstanding dues on their multiple credit cards.
How to choose the best credit card option in India when applying for the next one?
Those looking to apply for credit cards of top options like HDFC credit cards should primarily base their card selection decision on their spend patterns and take up a comparative cost-benefit analysis of availing various credit cards. For instance, those who tend to spend more on travel and hotel stays than on other expenses like shopping should avail a travel credit card with higher benefits on travel-related expenditure.
As far as undertaking the comparative cost-benefit analysis is concerned, one should carefully compare the benefits of various card offered in the form of reward points, free vouchers, cash backs, discounts, etc., and opt for the card whose benefits exceed its annual fee by the widest margin. Remember that many credit cards like SBI credit cards and HDFC credit cards also offer the waiver or reversal of joining/ annual fees on making card spends beyond a pre-set threshold limit.
Pros of holding multiple credit cards
-Potential to earn higher benefits
Due to the different usage and spending patterns of various consumer segments with varying habits, lifestyle, income, location, etc., credit card issuers tend to usually design credit card reward point programs as per the set target of consumers.
For instance, credit card issuers offer the segment of travel credit cards for consumers who are frequent travellers. These cards offer benefits like free air miles, complimentary lounge access, hotel vouchers as well as higher reward points on travel-related spending transactions. On the other hand, the segment of fuel credit cards offered by issuers like SBI credit cards is targeted at consumers who incur frequent and sizable spending on fuel expenses. Hence, owning multiple credit cards especially assists those who incur relatively higher credit card spends on multiple such categories, as they would be able to fetch higher benefits through spreading of their card spends across these multiple cards, based on their offered reward point program.
-Helps improve credit score by reducing CUR
Holding multiple credit cards can be helpful in lowering your Credit Utilization Ratio, which is the proportion of total credit limit utilized by the card user. Given that CUR of more than 30% is usually considered by lenders as a sign of credit hunger, even credit bureaus tend to follow suit and reduce your credit score upon exceeding this 30% mark, which can damage your credit score if done frequently. However, keeping track of your spends across credit cards like HDFC credit cards, making timely repayments, and limiting the spending within 30% of the overall credit limit, can lead credit bureaus to increase your credit score and hence, overall loan and credit card eligibility as well for future.
-Make the most of interest-free period
Interest-free period means the duration between the date of a credit card transaction and the due date of repaying the bill of that billing cycle. During this period, no credit card interest is charged on credit card transactions, except cash withdrawals done through credit card, as long as you repay the entire bill by the due date. The duration of this period for most credit card issuers like SBI credit cards usually ranges anywhere around 18-55 days, depending upon the date of credit card transaction (s). Those credit card users who have multiple credit cards can act smartly and make the most of the multiple cards’ interest-free period by spreading their planned big-ticket spending across different cards, based on the residual interest-free period available.
-Acts as a backup in situations of loss of primary card
In case your primary credit card gets lost or stolen someday, it usually takes a few days until you get the new replacement card. In such scenarios, having multiple credit cards can help in diverting your card spends towards other available credit card (s) and hence, ensuring that your liquidity and purchasing capacity remains intact.
-Possibility of over-spending beyond repayment capacity
Since most credit cards, whether its SBI credit card, HDFC credit card or any other issuer, tend to entice customers towards spending by offering lucrative discounts and other offers all around the year, especially during festivals and sales, those who lack financial discipline are at the risk of overspending beyond repayment capacity just to fetch such discounts as well as offers.
-Applying for an additional credit card will reduce credit score in the short run
Card issuers fetch your credit report for evaluating creditworthiness upon receiving your application. Although such lender-initiated credit report requests, known as hard enquiries, can harm your credit score by a few points, this drop is just a short-term consequence, and disciplined usage and repayment of cards can steadily lead to recovery in credit score.