With an array of expenses to be handled every month, keeping multiple cards is common among urban citizens.While on one hand it increases your hassles to keep track of how much you are spending, on the other it improves the credit utilisation ratio, thereby increasing your credit scores and worthiness for acquiring loans.
What is CUR?
Credit Utilisation Ratio is the percentage of the available credit limit you are utilising. If you have a spending limit of Rs 100,000 on your credit card, and say you use Rs 70,000 from that limit in a month, your CUR is 70%. This ratio reveals how much of your available credit is used every month.However, too much use of credit card, even if it is within your limit, might make you appear like a credit-hungry person to a bank or an NBFC looking at your credit history.
How can multiple credit cards help?
It is wise to keep your credit card spending under control, preferably at not more than 30 per cent of your limit. While we say you should ideally use debit card or cash to meet all your expenditure, having more than one credit card may help you minimise your CUR.For example, if you have two credit cards and a spending limit of Rs 100,000 on each of them, on spending Rs 50,000 using both cards, your total CUR would be 25 per cent. If you were to spend the whole amount from one card, your CUR would be 50 per cent on one card and 0% on the other.
Credit utilisation accounts for 30 per cent of your credit score. So lower the CUR, the better it is for you in terms of accessing loans from banks and NBFCs. With a low credit score, you are likely to be charged a higher interest rate than someone with a better credit score.We suggest splitting your expenses between two cards to avoid exceeding the 30 per cent threshold.
In order to get a healthy credit score, your credit history should reveal that you are able to pay off both short- and long-term loans in time. The amount spent through credit card is considered part of short-term loan. Always repay your credit card bills in full instead of settling for minimum payment.
How to manage multiple cards simultaneously
We know that managing multiple cards simultaneously can be challenging as it means keeping track of spending, bills and balances every month. Here are some dos and don’ts from us to help you manage finances better:
Use each card for specific purposes
Assess your spending behaviour and use each of the cards for specific purposes. For example, if you are someone fond of shopping online, keep one card for it so that you can keep track of the money you are spending on shopping.
Don’t carry a balance
Carrying a balance is not such a good thing and when you have two bills to handle each month you might have to prioritise. While we suggest paying off bills every month promptly in order to improve your credit score, in case of money crunch, go with the one which has the highest rate of interest first. Settle the entire bill for the card you pick and pay the minimum for the other.
Increase your purchasing power
While some cards provide higher rewards on purchase of air tickets, some provide cash back on movie tickets. Certain cards have higher rewards for certain kind of purchases and services. So compare the options and pick the right card for maximising rewards in order to increase your purchasing power. However, do not spend just to get rewards.
Make sure you pay on time
If you have more than one card, you will receive multiple bills every month and it’s hard not to lose track of the payment due dates. You might even overlook the bills in a stack of mails. We suggest you set a reminder on your calendar or phone in order to avoid late payments.
Having multiple credit cards can be a privilege if used judiciously. The key is to maximise your purchasing power by using reward points, discounts and cashbacks and pay bills in time.
The author is CEO, BankBazaar.com