Digital drive: Play your cards right

Getting a new credit card has become much easier now, with the Centre encouraging everyone to move to cashless transactions. Service providers often call us, saying we are eligible for free credit cards. Some of us are likely to acquire new credit cards although we may hold one or two cards already. Is it good to have more than one card?

Multiple cards enhance our credit limit and help us enjoy benefits such as more reward points and cashback. But it could turn out to be a double-edged sword. Read on to know how to wisely manage multiple cards.

Holding an additional card as a backup can be a wise idea. During medical emergencies you will have the credit limit of more than one card to your aid. If you lose your primary credit card, or it becomes unusable due to technical issues, the other cards can come to your rescue.

But remember, the backup card has to be used only when required. Ranjit Punja, co-founder of CreditMantri, says: “Having multiple cards with enhanced credit limit offers relief in cases like medical emergencies. (But) you should be cautious that the extra card is not used for any big ticket personal spending like buying an expensive television or mobile phone.” The credit limit offered in any card typically ranges between ₹1 lakh and ₹3 lakh. So, opting for an additional card just to enjoy a greater credit limit could indicate a tendency to over-spend. It could easily push you into a debt trap.

You can carefully manage the usage of your cards in two ways. First, there are many mobile apps that track your credit card expenses and provide alerts. Second, whenever possible, make use of alternative payment methods such as net banking, especially for small amounts.

Credit cards offering various benefits — such as more reward points, cashbacks and special offers like free movie tickets — are much sought after. Having multiple cards to enjoy these is acceptable, especially if you are a regular online shopper. Cards from SBI, HDFC Bank, Citibank, etc can save you more money, particularly during online sales, via cashback offers.

Holding an extra card or two to obtain a special privilege cannot be avoided. If you are a frequent road traveller, it makes sense to have a fuel card from ICICI Bank or Citibank as an additional card. Similarly, if you are a frequent flier, an airline privilege card can save you quite a bit.

But remember to limit the number of cards to three, as managing anything beyond that is rather challenging. If, for instance, you acquire five credit cards to gather more reward points, offers etc, it is quite likely you will miss out on a payment. Not all service providers may send reminders before the due date.

Vikas Kumar, co-founder of Loantap, says: “Missing out payment deadlines will cost you many times more than the reward points or the cashback you have obtained. The high late payment fee will overshadow all the benefits you get from your credit cards.”

Go for multiple credit cards only if you can manage them well. And never go for more than three. Using them judiciously can enhance your credit score.

“Always use not more than 50 per cent of the credit limit in each of the cards you have. This will have a positive impact on your credit score when compared to using 80-90 per cent of the credit limit in a single card,” advises CreditMantri’s Punja.

Thus, if you are financially disciplined, say yes to an additional card. But, if you are a high spender and are more likely to default, resist that temptation.