RAJIV RAJ Founder & Director, Creditvidya.com | May 15, 2015, 10.01 AM IST | Source: Moneycontrol.com
Many individuals do carry stack of credit cards, which they may never use or may overuse all of them leading to repayment issues. It is better to analyse one’s needs and decide the right number.
The other day, while a friend was paying the bill at the mall counter, he said, “I hardly carry cash anymore you know. Just some loose change maybe. It’s all on my cards.” While I looked at his fat wallet which was stashed with so many cards, 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 is! Every day we are bombarded with advertisements and lucrative offers. Credit cards are just a call away. The documentation and application process is made simple and hassle-free to attract more customers. Effectively companies are flocking to lend you money! So what do you do? How does your decision affect your CIBIL score?
Too many cards, too many outlets for money!
If you have hoarded 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 time, the deal seems so enticing that we end up swiping the card for it. 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.
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.
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.
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.
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.
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 three to five. 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. Two 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 effectively utilization. Use plastic money to make your life easier and your bank balance heavier. Planning and discipline is the key.