Credit cards are highly safe and convenient tools that one can use to make cashless transactions. However, that does not mean you should take all the cards you are eligible for. Having multiple cards can either increase or decrease your credit score, depending on how you use them. No matter how many cards you have, the key is to keep your balance low and stay consistent with your bill payments.
Read on to learn if too many cards can become a burden on your credit score and how to use credit card responsibly to save your credit rating.
Factors Affecting Your Credit Score
Credit score is a 3-digit number that credit bureaus calculate based on a few crucial factors. These include:
- Repayment history
- Credit utilisation ratio
- Credit length
- Diversity of credit portfolio
- Debt-to-income ratio
How Too Many Credit Cards Can Improve Your Credit Score?
Each credit card comes with a credit limit, which means having multiple cards can make a larger credit limit available at your disposal. Having a high credit limit means you can maintain a low credit utilisation ratio, which can eventually help you increase your credit score. Paying all your credit card bills on time every time can be an excellent way to build credit.
How Too Many Credit Cards Can Hurt Your Credit Score?
While too many credit cards may help you improve your credit score, using them the right way requires due diligence and control. Generally, it is not wise to use multiple credit cards simultaneously. Here are the reasons why:
More Credit Limit: Having multiple cards gives you access to a higher credit limit, which can tempt you to spend more. Since you would pay the balance each month, carrying it forward can hurt your credit score.
Complex Management: Multiple credit cards means multiple due dates to remember. Keeping track of them may become difficult, and you risk missing or delaying payments. If you miss a payment intentionally or unintentionally, it will reduce your credit score, and you will also need to pay hefty interest charges and late payment penalties.
Multiple Hard Enquiries: Whenever you apply for a new credit card, the bank or card issuer pulls a hard enquiry on your credit report. These enquiries lead to temporary drops in your credit rating, and too many of them can hurt your score for long.
Reduced Credit Age: Credit bureaus give you a higher credit score if you have a long history of responsible credit management. Each new credit card lowers your credit history’s average age and reduces your credit score. Since you cannot demonstrate positive credit behaviour with a new card, it may hurt your credit rating.
Unused Cards: When you have multiple cards, some cards might be giving you more benefits than others. Eventually, you may decide to surrender the unused cards lying in your drawer. You reduce your credit limit and eventually hurt your credit score when you do that.
Tips to Maintain a High Credit Score While Using Multiple Credit Cards
Avoid Applying for Multiple Cards Within a Short Period: Since each application can pull a hard enquiry on your credit report and reduce your credit score, you should avoid applying for multiple cards within a short period. Apply for one card, let your credit score recover, and then make another application.
Stay Consistent with your Credit Card Bill Payments: Your bill payment history constitutes a large part of your credit score. You must pay your credit card bills in full every month to achieve a near-perfect credit score. Even by mistake, missing a bill payment can lead to a reduced credit score and hefty late-payment charges.
Activate e-Mandate: Activating e-Mandate can help you pay your bills on time. Your due bill amount is automatically deducted from your bank account every month when you do that. This means you don’t need to remember the due dates and pay multiple bills each month.
Keep Credit Utilisation Ratio Low: The lower credit utilisation ratio you maintain, the higher can be your credit score. Therefore, while you have the credit limit of all your credit cards, you must control your expenses to use a minimum of the available limit.
It’s not about how many cards you have but about how to use credit card responsibly. Ideally, 3-4 is the right number of cards to use. Only apply for a credit card that offers lucrative perks according to your requirements and lifestyle. The best way to maintain a high credit score is to maintain a low credit utilisation ratio and pay your credit card bills on time.
