How many credit cards should you have?

While credit cards offer convenience, if not managed well, it could become a nightmare.

By Naveen Kumar  
Tuesday, August 28, 2018

Instant availability of credit at your disposal is among the finest conveniences offered by modern financial world. There are plenty of avenues to spend money, so are the ways credit card can be used. Most credit card players have tied up with different product and services providers to offer better value propositions to their customers. This has resulted in customers being offered many cards in any of his preferred spend category. "Each category of the card has various advantages and benefits. Some comes with cash back schemes and others provide freebies and benefits. In addition, some premium cards also have other accredited membership of premier hotels, golf clubs or loyalty programs, where one can add on to its loyalty points or miles by using specific kind of credit card," says Amanpreet Kaur, Partner TASS Advisors.  Whether you are a frequent flyer, a regular apparel shopper, e-shopper or a gadget enthusiast, you may have many credit cards offering great deals on your favourite items. But, holding many credit cards has its hassles too. We tell you how many credit cards you should ideally have:

When having a credit card helps: Credit card gives you best of the advance money that remains at your disposal, you can use it when you wish and pay it back within interest free credit period, which doesn't cost you anything. At the time of emergency when you have exhausted your savings and still need some funds, the credit limit of your credit card could be of great help. If you use your credit card regularly, it helps you in maintaining a good credit history and building a good credit score. If you're someone who uses credit cards rarely and does not want to spend too much time on managing credit card payment cycle, only one credit card will be sufficient for your instant credit needs.

Should you have additional cards? If you are a frequent credit card user and depend upon credit cards for paying many of your day-to-day usages, you need to stay prepared for facing some operational and technical glitches. This could be card-related, accepting machine related, network-related or payment gateway related. Besides, if you misplace your card, getting your card hotlisted and waiting for the new card to arrive takes quite some time. In all such situations, a second credit card becomes really handy as it enables you to make payment even when one of your cards is not available or functional. A second card also enhances your overall credit limit and hence your ability to manage emergency.

How it pays to have multiple cards: Low utilisation of credit limit is considered a prudent behaviour by credit bureaus who assign good score on good credit behaviour. The higher the credit utilisation goes, the more adversely it may impact your credit score. If you have only one credit card, you would generally utilise higher part of the credit limit. On the other hand, if you have many credit cards, it would allow you to spend only a small percentage of your overall credit limit. You can also plan your spends in such a way that you utilise only a small fraction of credit limit of all your cards and still meet your need of big money if you have multiple credit cards. It is considered a positive trait and helps in increasing your credit score. More credit cards also enhance your overall credit limit, thus the ability to meet any emergency.

When it hurts: While credit cards offer convenience, if not managed well, it could become a nightmare. First you have to remember the payment due dates of many card, then make cash flow plans accordingly to manage timely payment. "Holding multiple credit cards may have several problems.  Apart from exceeding your spends beyond your paying capacity, one may also face issues with respect to maintaining and reconciling proper accounts. Missing multiple credit card due dates shall trigger increased interest rates/ late fees and may also impact the credit score," says Amanpreet.  If you mismanage, you may end up paying hefty penalties and damaging your credit score, which can hamper your ability to avail any credit in future.

The ideal number: Keeping track of statements and due dates of two credit cards could be quite a task. Therefore, it is better not to go beyond a number of cards that you can comfortably manage. "One should not hold more than two or three credit cards at a time.  By restricting the number of credit cards, one can easily segregate one's official and personal expenses. In addition, one card can be kept only for online purchases, thereby reducing any risk of online fraud on all the cards. Having two active cards at a time also provides a backup in case one card is lost or stolen," says Amanpreet. If you have accumulated many credit cards, it makes sense to close some of them and stick to two or three best ones that suit your spending pattern and offer highest reward.

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