The other day, while a friend was paying the bill at the mall counter, he said, “I hardly carry cash anymore you know. It’s all on my cards.” I looked at his fat wallet which was bulging out of shape with credit cards of all kinds and I wondered: How many credit cards are too many or too less?
Many people and specially the youth have already declared that this is the age of plastic money. Credit card companies took it upon themselves to ensure that it indeed does become one! Every day we are bombarded with advertisements and lucrative offers. Effectively, banks are flocking to lend you money! The temptation is too much to resist. So, what do you do? Remember, all your money decisions in public sphere can affect your CIBIL score?
1. Too many credit cards, too many outlets for money!
If you have too many credit cards, it also means you have multiple options for ‘swiping’. To encourage customers to gather reward points, card companies are constantly coming up with offers. Now, it’s difficult to ignore these deals. Many a times, the deal is too enticing to leave. Which basically means, that you ended up making a purchase because you had a card with an offer on it! That is definitely less than a wise way of spending money.
2. So what should you do?
Nobody understands your requirements better than you do! Over the weekend spread out all your cards on the table and sit with a cup of green tea. With a calm mind, evaluate the need for having each card independently. There may be cards which you purchased because somebody asked you to or a card bought for the reward point’s scheme on it, etc. Segregate those from the cards which you use often. Now calculate the cumulative credit limit you have. Cross check that with your expenses. Ensure you add up some amount for emergency expenses or large expenses which you foresee in the near future. That would basically be all the credit limit you need on the card. Add on a buffer for feeling safer and that’s about it.
3. Pick and choose!
It’s time to make smart choices. Check up on annual fees on the credit card, interest rates applicable, reward point schemes, etc against the credit limit offered. Select the ones which best suits your needs. You already have an idea of the total credit limit you need. That’s it. You will arrive at your own magical number. Discard rest of the cards and have a lighter wallet and a clearer mind.
4. How does this impact my CIBIL score?
CIBIL score reflects your credit history and financial discipline. That means, first of all you need to have a credit history. That’s where credit cards can help you. Availing a credit card gives you a credit history. This can help you while applying for a loan. Next up is the financial discipline bit which basically means tracking your payments due. If you have been making your payments on time and not having a defaults history then your CIBIL score would be shining. Another factor which is considered while preparing the CIBIL report is the utilization. Only having a credit limit is not enough. You should be utilizing it optimally as well. Exceeding 30% credit utilization ratio during a billing cycle could do damage.
5. Play your cards by the rules!
There is no better way to influence your CIBIL score than imbibing financial discipline. Make sure you pay off your credit card due amount every month. This will not only shield you from high interest rates applicable on credit card money but also impact the CIBIL scores positively. Obviously, the more the number of credit cards, the more discipline you require. Tracking and paying off on time is important. Secondly, keeping a check on the credit utilization ratio with too many cards in the hand is difficult. With fewer cards and planned spending this tracking can be a cake walk. And of course, one that will ensure sweet CIBIL scores.
6. So what’s the magical number?
That is up to each one of us to figure out after considering all the factors mentioned above. If we had to give a number, it should be something between 3-5. Two card which you can use regularly and an additional one for emergencies will do just fine. Also, managing 3 cards is relatively simple. All you have to do is establish the 30% spending limit and use the cards accordingly. Needless to say while making timely payments. 2 additional cards can be availed if you travel for work or have a particular expense on which you spend frequently like flights, fuel etc. These cards can be specifically used for the determined purpose.
Now that you are equipped with all the insights on credit cards, it’s time to say goodbye to the stack and hello to fewer cards and effective utilisation. Use plastic money to make your life easier and your bank balance heavier. Planning and discipline are the key.