Credit cards are a popular financial tool that can offer users a wide range of benefits. While owning a single credit card may seem like the norm, many people wonder if having multiple credit cards is a wise decision.
So, is it good to have multiple credit cards? The truth is the impact of multiple credit cards on your credit score and credit report can vary depending on how you use them. While having more than one credit card can offer advantages, its drawbacks can significantly impact your credit score.
To help you navigate this decision, we've outlined how multiple credit cards can impact your credit score.
How Multiple Credit Cards Can Affect Your Credit Score?
"Is it good to have multiple cards?" is a question many credit card owners ask. Owning multiple credit cards does affect your credit score for better or worse.
Let's begin with how multiple cards affect your credit score positively.
You can maintain a low credit utilisation ratio
Maintaining a healthy credit utilisation ratio is key to preserving a good credit score. This ratio is calculated by dividing the total credit you've used by your total available credit limit. One way to achieve a favourable ratio is by using multiple credit cards instead of relying on just one.
For example, if you've one credit card with a limit of Rs 30,000, your limit stays the same. However, if you've five credit cards, each with a credit limit of Rs 30,000, your total credit limit is now Rs 1.5 lakh. A larger credit limit spread across multiple cards allows you to keep your credit utilisation below the recommended 30% threshold.
You can gain financial flexibility
There are various benefits of maintaining multiple credit cards. However, the significant advantage is that having multiple credit cards helps you manage your finances. Not only can you use them to cover everyday expenses, but they can also serve as a safety net for unexpected expenses. In addition, by dividing large expenses across two or more cards, you can avoid exceeding your credit limit. This will ultimately help you maintain a high credit score.
With multiple cards, you can also take advantage of varying rewards and benefits tailored to your needs, such as cash back or travel perks.
You can have a clean credit history
Your credit score is heavily influenced by your payment history. By paying off all your EMIs and credit card bills on time, you maintain a positive payment record, which can increase your credit score. But with multiple credit cards, you have the opportunity to make several timely payments, which can further boost your credit score. This is one of the best benefits of multiple credit cards.
However, it's important to remember that owning multiple credit cards entails additional financial responsibility, as missing payments can harm your credit score. Therefore, staying on top of your payments and maintaining a good payment history is crucial.
Here are three ways having multiple cards can negatively impact your credit score.
You might end up with a bad credit score
When applying for a credit card, your credit score is a crucial factor that lenders take into account. To secure approval, it's essential to maintain a credit score of at least 750. One way to achieve this is by consistently paying your dues on time and keeping your spending in check.
However, having multiple credit cards can be a double-edged sword. While they may offer convenience and rewards, they can also lead to excessive spending and mounting debt, ultimately harming your credit score. To avoid this, it's important to be mindful of your spending habits and only use credit cards for necessary expenses that you can afford to pay off on time.
You can get multiple hard inquiries
If multiple credit cards have several benefits, there are disadvantages as well. One of the downsides is that you can accumulate a lot of hard inquiries, which can harm your credit score. Lenders make inquiries before issuing you a credit card. If you apply for several cards in a short period or if there have been multiple inquiries within the past year, this can harm your score.
You may have trouble managing multiple credit cards
Managing multiple credit cards can be difficult, as it means keeping track of several due dates. In addition, even a single missed payment can significantly damage your credit score. Thus, applying for multiple credit cards may not be worthwhile if you risk damaging your credit score.
Summing up
So, if you've been pondering how many credit cards are necessary for a good credit score, there is no set number. Whether you've three or ten credit cards, it's essential to ensure that you make timely payments, keep your balances low, and avoid falling into debt.
Regardless of the number of credit cards you own, maintaining a strong payment history and being responsible with your credit can help you achieve a good credit score.
04 April 2023
5 mins read
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