Credit where its due

Written by Adhil Shetty | Updated: Jun 13 2014, 20:51pm hrs
The ease and convenience of using a credit card, along with the spiel of reward points, often lures people into accumulating multiple cards. Holding multiple credit cards per se is not wrong, but the decision to opt for one must be accompanied by thorough research and judicious usage sometimes even non-usage for more than a year can mean a penalty or attract significant charges.

Managing multiple credit cards can, therefore, be tricky. Lets look at the various ways to optimise the benefits while limiting the damage.

Read the terms carefully

The first step in making the most out of credit cards is understanding the terms of service of usage. Most people with multiple credit cards dont read the terms of service booklet that comes with the credit card, relying simply on what the sales executive tells them verbally. Going through the terms of service gives a clear picture, ranging from the interest rate to other charges to the interest-free credit period.

The terms also mention the minimum amount one needs to spend with the card to be eligible for benefits and perks. Credit cards charge a yearly fee for non-usage. Reading the terms of service tells one how to maximise benefits and keep debt in check.

Automate monthly payments

Owning multiple credit cards is like walking on a double-edged sword. One small mistake and you could fall into a vicious debt trap. The best way to avoid this is to automate payments for each credit card by linking them to your savings bank account.

In fact, the worst a credit card holder could do is default on monthly payments. Since interest rates on credit cards are very high, its imperative to cultivate the habit of avoiding loans or rolling over dues. Make purchases judiciously, and buy only those things you can easily pay for by the due date.

Using the ECS mechanism also ensures that your credit card dues are paid automatically, even if you dont have access to a computer or internet for a few days.

Track statements online

People with multiple credit cards are likely to miss a bill or two in a month. To rule out the possibility of misplacing a bill and defaulting on payments due to busy work schedule or holidays, one must always track ones statements online.

If you are someone who requires constant reminders, ensure that you set a monthly reminder on your calendar or mobile phone to make all payments on time without defaulting.

No balance transfer willy-nilly

Some people transfer balance from one card to another randomly. While balance transfer is a great tool to leverage interest payment, it should only be done when needed. Constant balance transfers not only hurt an individual's credit score, but also impact financial disciple in the long term.

Split your purchases

Credit card companies charge users if the card remains non-operational for over a year. There is no point holding a credit card if you dont use it for purchases, transactions or payments. Make sure you split your purchase between various credit cards to avoid any non-usage charge.

A lot of people purchase stuff using credit cards to avail cashback facilities and reward point programmes that card issuers offer. Make sure you are aware of the minimum purchase required for entering such programmes. One can split ones purchases, in accordance with the reward programmes conditions, if needed.

Cards that suit your needs

Many people commit the cardinal sin of opting for every credit card offered by a bank or the credit card sales personnel. Pick a credit card keeping in view your individual needs.

If, for example, you use your card a lot for grocery shopping, a co-branded credit card with a retail chain may be a better bet than a credit card offering more rewards on petrol purchases or international air ticket purchases.

Remember, having a credit card can help you build your credit score but only if it is used judiciously and wisely. People with multiple credit cards must make it a point to check their credit report frequently to avoid any negative impact on their credit history.

The writer is CEO,