The use of plastic money is a rage in 2020. With more & more Indian customers willing to apply for Credit Cards, Banks and Credit Card issuing companies are launching all sorts of Credit Cards packed with extraordinary rewards & offers for new cardholders.
With attractive value back offers, anyone can get swayed towards applying for a new Credit Card. For instance, if you use for any of the Citibank Credit Cards now, the bank is offering Rs. 1000 as cashback on new applications and a chance to earn up to Rs. 9,999 as cashback on successfully referring your friends. The offer is too good to be ignored and, more often than not, might prompt you to apply for a new credit card with better benefits.
But what if you already have a Credit Card? How does owning multiple Credit Cards affect your credit score? Let’s discuss this real issue in detail.
Credit Cards and Credit Score
You would already be aware that your credit score is an extremely important parameter for financial institutions, as it helps in determining your creditworthiness. But do you know about the different factors that affect your credit score? Well, one of the most important factors impacting your credit score is Credit Cards. The way you use your Credit Card and make repayments have a major impact on your credit score.
With several new types of Credit Cards being launched regularly, you might be thinking about applying for a new credit card or an upgraded card with enhanced features.
Whether you are using some of the Best Credit Cards in India or applying for a newly launched rewards card, having multiple cards in your wallet requires an additional responsibility of managing them. By using your credit cards like a pro, you can indeed boost your score.
- Repayment History: Always pay your Credit Card bills before the payment due date. Any failure to repay the bill on time attracts penal charges and can also result in lowering of your credit score. When you have multiple Credit Cards, it may become difficult to track the due dates. You may also face accumulated monthly debts.
The best way out is to opt for automated payments every month from your bank account. Also, make sure your different cards have different payment dates. This will help you make the best use of free credit period and thus ease of credit burden at the same time. Generally, all credit cards come with 45-55 days of free credit period. By transacting your expenses from different cards, you can conveniently make maximum use of available credit limit.
- Credit Utilisation Ratio: The CUR is the total percentage of the available credit limit that you have utilized against your Credit Card. It is another major factor that affects your credit score. Usually, a threshold of 30% is considered as an optimal credit utilisation ratio. If it goes any higher, it is interpreted as dependence on high-interest credit and is, therefore, a red signal for the lenders, eventually reducing your credit score. When you have multiple Credit Cards, make sure your overall credit utilisation ratio for all the cards is below 30%.
- Age of credit line: The duration for which a Credit Card is active also plays an important role in determining your credit score. Older the line of credit is, better it is for your credit rating. This is due to the fact that when you keep old credit lines active instead of opening new lines all too frequently, it reflects financial discipline on your part. But when you apply for multiple Credit Cards simultaneously, it reflects as financial indiscipline and thus results in lowering of your credit score. So, instead of applying for new Credit Cards for a higher credit limit, keep old credit lines active and negotiate with the Credit Card issuer for an increase in the limit.
- Type of credit: Another significant determinant of your credit score is the type of credit facilities in your portfolio. Ideally, your credit portfolio should have different types of credit products, such as retail loans, credit cards, car loans, etc. If there is only one type of credit product in your portfolio, it will impact your credit score negatively. Moreover, if that credit product is unsecured loans and Credit Cards, it signifies higher exposure to high-interest credit, which is considered a sign of dependence on expensive credit facilities. This results in the lowering of your credit score.
To enhance the benefits of your credit card, make sure you own Different types of cards offering different types of rewards & benefits. Read the terms and conditions prior to availing of the card. This way, you can enjoy maximum benefits on online shopping, fuel refilling, movie booking & travel almost all year round.
Factoring in all these points, you can easily maintain a robust credit score effortlessly and tap the maximum value of your credit cards.
