We have as many varieties of credit cards as our needs and wants. One that rewards you for traveling, one for fueling up your vehicle, one for online shopping, one for air tickets, one for grocery shopping offline, and so on and so forth. It seems nice to open a wallet full of credit cards that make you feel good.
There is no standard number that can be prescribed for everyone. The holding of credit card(s) is dependent on individual usage, repayment ability, and prompt repayments. It is possible that an individual can own just one card and yet default on their payments while another individual who holds 4-5 cards may be prompt on all their payments.
Yet let us explore the advantages and disadvantages of holding numerous cards before we can get to how many cards may be held by a person.
Advantages of holding multiple credit cards
Multiple credit cards provide you with additional flexibility and convenience
When you have a lower credit limit on a card, holding more than one card can prove useful
You can avail an extended interest-free credit period if your cards have different periods of billing. For Ex: Card A has a billing date during the start of the month and Card B has it towards the end of the month. Then you can alternate spending between the cards so as to avail maximum credit period
Different credit cards can earn rewards/points/cash backs for transactions which may be beneficial to you.
Many cards come with a limited number of access to airport lounges, so holding multiple cards may allow you to access airport lounges many numbers of times
If you are a loyal user of multiple brands, then it makes sense for you to hold co-branded credit cards of those brands so that you are rewarded for your usage.
Owning multiple cards may help you better your credit score. Credit utilization ratio is an important determinant of your credit score. Owning multiple cards can help you space out your spending between the cards so that your credit utilization ratio remains low. A lower credit utilization ratio ensures your credit score remains high
If your payments of credit card bills are timely and you pay up the entire amount each time, you may be demonstrating yourself as a person with good credit habits. This will see your credit score going higher
Prompt repayment of credit card bill, credit utilization ratio and your credit mix are important features that determine your credit score
Disadvantages of holding multiple credit cards
The more the number of credit cards, the more you have a tendency to splurge. It is more likely for you to go past your budget
Tracking spending on your cards might be difficult
If you are not paying enough attention to your card utilization, you might even miss out instances where your card has been misutilized
It is also easier to lose track of due dates and amounts with many cards to deal with
When you have a multitude of cards, physical loss of cards will be difficult to deal with as you will have to inform various issuers and keep a track of unauthorized transactions too.
When you skip payments, you get into a debt spiral as ensuing spending on your credit card is also charged interest from the day of spending. Credit card debt is the most expensive debt to owe, which usually has the interest rate of 30-40 %
Once you get into the debt spiral, it takes a toll on your finances
Credit mix or the number of secured and unsecured loans in your credit portfolio is also an important determinant of your credit score. If you have multiple credit cards (unsecured loans), you may be thought of like a credit hungry person which may have an adverse effect on your credit score
If you have multiple credit cards (unsecured loans), you may be thought of as a credit hungry person which may have adverse effect on your credit score
What Is The Ideal Number For You?
As we have said earlier, there is no formula which can decide the apt number of cards for any particular individual.
We have looked at the advantages and disadvantages of holding multiple cards. The advantages of holding multiple credit cards seem to be many. But before going in for multiple credit cards, it is good to evaluate your need for multiple cards.
How Do You Evaluate Your Need For Multiple Cards?
Customization is the buzzword and there are cards meant for each facet of consumption. But it is neither possible nor practical for an individual to hold different cards just because there is a card designed for that purpose.
Analyze Your Existing Spend: Bring out a couple of your credit card statements and look into your spending patterns. What are your primary areas of spending?
Are you an airline user? Do you spend a lot on movies and other such events? Do you dine out frequently? Are you a freelancer/small business owner who has to bifurcate between your professional and personal expenses?
After you analyze your spends, do a check if your existing card rewards you well for those transactions? There are certain Reward Cards which offer rewards/cashback on all sorts of transactions. If you already hold such a card, then there might not be a need to go in for a different card just for rewards/points.
If your existing card is pretty stingy with rewards on your category of spends, then you might consider looking around for cards that give offers/benefits on your category of spends. Again, other points to be borne in mind are other features like joining fee, annual fee or minimum spend criteria if any to earn those benefits/rewards. If you have to pay extra to earn those benefits, then it might be good to continue your relationship with your existing card.
Analyze Your Credit Utilisation Ratio: Each credit card comes with a Credit Limit which is decided by the card issuer based on your income, your other liabilities, and credit score. Whereas, your credit utilization ratio is the ratio of your spending on that card to your Overall Credit Limit.
Credit Utilisation Ratio is an important determinant of your credit score. An ideal credit utilization ratio should be in the range of 30-40%. A high credit utilization ratio on a consistent basis shows you as a credit hungry person.
On your analyses of your spending pattern, if you find yourself in the category of high spenders or with a higher than prescribed credit utilization ratio, then you should think of going for multiple cards. But do not hasten while making this decision. Try and look into your spends and try cutting them down, if possible.
Owning multiple cards may help you space out the spends between your cards so that each of them can have a lower credit utilization ratio. This may help you improve your credit score.
There are a lot of avenues for digital payments when it comes to convenience. So, a judicious mix of credit cards and other modes may be an ideal situation. Moreover, holding multiple cards should always be based on the individual's needs, utilization, and repayment. In any case, no more than 2-3 cards should be held by an individual.