Have you just started your credit journey? If yes, having 2 or 3 credit cards won’t damage your credit score. However, if you are opting for multiple credit cards and thereby triggering multiple credit inquiries the credit score impact can be quite severe. Wondering if your credit score will drop if you are using multiple credit cards or have too many open loans? Do you know how many credit card accounts will tag you as a high-risk borrower and affect your future credit approval chances? Let’s find out how many credit cards are good for your CIBIL™ score.
How does having multiple credit cards impact your credit score?
Having multiple credit cards has some advantages and disadvantages. While using multiple credit cards can be a challenge for anyone, if these are used smartly these can also prove to be beneficial. Often, we are tempted to apply for multiple credit cards since each credit card offers unique features and exclusive benefits. For instance, a travel credit card is ideal for travel-related expenditure and offers maximum rewards mainly for travel-related spending. This is why card users prefer to have different credit cards for different spending needs.
Applying for several credit cards simultaneously
Applying for several credit cards at the same time may not cause severe damage since each application is considered and reviewed independently. However, it is wise to be cautious about multiple applications since managing several credit cards at once can be challenging. Many banks easily approve multiple credit cards for applicants who have a good repayment track record. Those who have a very good credit score can easily apply for additional credit cards.
Is it wise to use too many credit cards?
Using too many credit cards depends on the type of credit card that you hold. For instance, if you own a diverse range of credit cards that are different from each other as far as usage and benefits are concerned, then it is considered good. For instance, one could be a travel credit card used mainly for travel-related expenses and another could be a rewards card meant for regular purchases. The travel credit card is not beneficial for regular purchases such as daily groceries, etc. On the other hand, a regular credit card is not ideal for travel expenses. Therefore, it makes sense to have multiple credit cards to get maximum rewards points and perks on each of the cards.
It is considered ideal to have 2 or 3 credit cards that have exclusive features like travel, regular use and online shopping. However, more than 3 credit cards are not advisable. Those who can manage with one credit card need not opt for multiple cards. As long as a card user is making regular payments on all credit card bills, it does not affect one’s access to other forms of credit.
Benefits of having multiple credit cards
Here are some of the noteworthy benefits of having multiple credit cards:
- Helps to maintain a low credit utilization ratio: If you have a single credit card and use a maximum of 90% of the available credit limit, it will automatically bring down the credit utilization score. However, in case you have more than one credit card and you use only 50% of the available credit limit, it can help in maintaining an ideal credit utilization ratio.
- Help raise credit score: Those who use multiple credit cards and continue to make payments on time can build a good credit score. This increases the creditworthiness of the user and allows access to additional credit opportunities in the future.
- Increased credit limit: With many credit cards, cardholders can have access to an overall higher credit limit. However, this must be used very responsibly.
- More rewards and cashback: With multiple credit cards, users can access various card-related perks and benefits. These can be in the form of cash backs, rewards, discounts, etc.
Disadvantages of having multiple credit cards
Here are some of the negative aspects of owning multiple credit cards:
- Difficult to manage: Multiple credit cards can result in different billing cycles, various credit limits and tracking of each payment due date. This may be overwhelming for many and missing out on even a single payment can immediately impact credit scores.
- Can lead to additional debt: Availability of more credit can be very tempting. This may result in overspending and turn into additional debt. If cardholders do not use these judiciously, it can lead to overspending and a continued cycle of debt.
Organising your payments, when you own multiple credit cards, would definitely help you enjoy a higher credit score and its consequential benefits. Multiple credit cards can give a user the benefit of a higher credit limit and therefore the credit utilization ratio can come under the ideal category. It is not about how many credit cards one owns for a good CIBIL™ score but whether the payments on multiple cards are made on time that has an impact on the credit score.