Credit Cards have become an indispensable part of our modern life. It has been woven so intricately into our life that we cannot imagine a future without credit cards. If you are already a proud credit card owner, you might already be familiar with its features. Easy accessibility, perks, rewards, card types, etc. You are also aware that each credit card has certain restrictions. This includes credit limit, the interest rate, annual fees, etc. Knowing all these, you might be on the hunt for the best credit cards.
However, finding the best credit cards is practically impossible. Each credit card rewards a different consumption pattern. Hence, the varying nature of consumer spending makes it impossible to determine the best credit cards. Instead, you could get a second credit card.
This article will discuss the pros and cons of having multiple cards and when to get a new credit card.
PROS AND CONS OF HAVING MULTIPLE CARDS
Having multiple credit cards has its own sets of advantages and disadvantages. Below, we will discuss the benefits of owning multiple credit cards and the risks associated with multiple credit cards. Knowing this will help you decide whether to apply for a new credit card.
Pros:
- Increases Credit Limit: Accessing multiple credit cards increases your credit limit by default. For instance, let us assume that you have a credit card with a limit of Rs. 75,000. If you get a second credit card with the same credit limit, your overall credit limit will be Rs. 1,50,000. This credit limit increase can benefit your credit cibil score if managed properly.
- Credit Utilization Ratio (CUR): This ratio is computed by determining the credit amount utilized out of the total available credit. Generally, a CUR of 30% is recommended to improve your credit score. Maintaining this recommended CUR of 30% is hard with a single credit card, especially in times of crisis. However, getting a second credit card can spread out your credit utilization, thus, improving your overall credit score.
- More Perks and Rewards: Each credit card is targeted toward different consumption patterns accompanied by varied rewards and benefits. You are eligible for a wide range of perks and rewards if you have access to multiple credit cards. You can maximize the rewards earned by properly utilizing your different credit cards. This means using the travel credit card while booking a hotel or plane ticket. Or using the rewards card for shopping purposes.
- Financial Flexibility: The rising credit limit might come in handy in times of emergencies. You can easily rely on your credit cards to meet any unexpected expenses. Furthermore, you can spread your expenses to your multiple credit cards. This will ensure that your credit limit is not maxed out and your CUR remains at the recommended level.
- Improvement in Credit Score: You can improve your credit score by owning multiple credit cards. This is achieved by managing the CUR at the recommended level of 30%. Maintaining a CUR of 30% becomes easier with multiple credit cards. Further, managing multiple credit cards and paying on time improves your credit score. This indicates to your future lender that you can be trusted to handle multiple credit lines simultaneously.
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Cons:
- Debt Traps: Multiple credit cards increase your credit limit. As the credit card limit increases, the risk of overspending and raising a huge debt increases. Cardholders must be cautious and remain vigilant to avoid such a scenario. Utilize the recommended CUR on each card and avoid late payments, especially on cards with a high-interest rate.
- Difficult to manage: Multiple credit cards mean multiple payments, due dates, credit limits, interest rates, etc. It can be difficult to remember each due date and credit limit. Any missed or late payments will drastically impact your credit score. So, it is important to properly manage all the cards. And avoid carrying over credit balances, particularly on high-interest rate credit cards.
- Annual fees: Typically, credit cards with annual fees provide better rewards and offers than those with no annual charges. This doesn’t mean you are benefiting from all the rewards and promotions. Regularly review your credit card’s annual fee to determine if it is worth it to keep paying it.
When Should You Apply for a New Credit Card?
You should not apply for multiple credit cards at the same time. The card issuer makes a credit inquiry to review your credit application. Each lender will request a credit inquiry separately if you apply for multiple credit cards. Excessive credit inquiries in a brief period are a red flag for card issuers. They tend to interpret it as a sign of desperation and potential risk. You should apply for a new credit card under the following circumstances:
- If your credit score has improved. This might make you eligible for an improved card with better rewards and promotions.
- If you can take advantage of new promotions. More and more card issuers are offering a 0% Annual Percentage Rate (APR) for a specific time. APR is the interest rate charged by the issuer to cardholders. If you are eligible for such promotions, avail of this opportunity to make interest-free purchases.
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Conclusion:
You should get another credit card only if you can afford it. Managing multiple credit cards is a challenging task with exceptional rewards if handled properly. Consider the pros and cons mentioned above and decide accordingly.
