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How many credit cards should YOU own?

Last updated on: June 11, 2012 16:30 IST

How many credit cards should YOU own?

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Salil Dhawan, Investment-mantra.in

Some significant points before you zero-in on number of credit cards you should possess

More often than not, we encounter the dilemma as to exact number of credit cards one should have. Credit cards mean different thing to different people. For some it's an easy way to spend and for some it is convenience. You simply don't have to carry cash and can make purchases with ease. Of course, you need to watch out for the obvious pitfalls such as high interest rates on rollovers, hidden fees and danger of falling into a debt trap.

The number of credit cards one possesses will vary from an individual to individual based on one's own personal credit card needs. Some people function just fine with one card. Some people need more because of say frequent overseas travel.

A good rule of thumb is not to focus so much on how many, but more so on how you are managing the ones you do have. Using your card responsibly and within you limits can do a lot of good to you.

We evaluate some of significant points before you zero-in on number of credit cards you should possess:

Courtesy: Investment-mantra.in


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Ability to manage credit cards

With credit cards you need to make sure to pay dues on time every time and are conscious to swipe only what you can pay off in full each month (in other words, live within your means).

On-time payments are the most important factor in developing good credit and upping or maintaining credit scores. You need to have the ability to track your credit cards, including payment due dates, interest rates, fees, and charges you've made.

For some, this is easier with just a few credit cards -- like one to three -- but becomes increasingly difficult as the number of credit cards exceeds five. Still, it depends on your own ability to manage your credit cards.


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Spending pattern

You should choose a card depending on your spending pattern. There are quite a few loyalty programmes run time to time which can be of great benefit to you.

For instance, frequent flyers may find cards co-branded by airlines very useful. They can rack up air miles which can be redeemed for free tickets. The benefits of such cards far outweigh their costs.

On some of the cards you can earn double the air miles on every ticket bought on the card. Your needs should drive the kind and number of credit cards you should own.

Credit cards are good for providing standby money in case of emergencies. However, such standby money is borrowed money. Credit cards give easy access to short-term loans. This easy access can lead to maxed out credit limits especially in situations of dire need.

And if you have more than one credit card, such maxed out credit limits can make your short-term debts balloon to amounts much larger than your short-term assets, thus making you illiquid.


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Ability to identify basket of benefits provided on different cards

Usually it's very difficult to find one single card that gives you all the benefits rolled in one, so intelligent customers tend to subscribe to two or three to access the basket of benefits that they are interested in and use them judiciously to maximise their gains. If you are a responsible spender, subscribing to couple of cards can prove to be a smart option.

Recognising the downside of more credit cards

Even if you are a responsible spender, you should be well aware of downsides of having too many credit cards. Tracking payment dates properly on multiple cards can be a nightmare. In time, non-payment can result in unwelcome penal fees and interest. Use credit cards which give you an option to pay online through any bank account.

Conclusion

There is no thumb rule as to number of credit cards one should possess. While credit card is a useful tool in many ways, it is also an easy way to fall in debt trap.

Each credit consumer in the country has his/her record populated in the credit bureau with an attendant credit score. The credit score is a reflection of the credit worthiness of the customer. Having too many cards can affect your credit score because the customer is perceived to be 'credit hungry' and thus more 'risk prone'.

However, a good basket of cards can provide you excellent discounts from time to time which you simply can't avail otherwise. So do evaluate your ability to manage credit card judiciously and spending pattern before reaching to a definite number.


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