Is It Bad To Have Too Many Credit Cards?

Credit cards have become a must-have thing in everybody’s wallet these days and credit card bills are featured in our budget month after month. However, sometimes people go overboard with credit cards.

So, in this article, we will be exploring how credit cards work and whether is it a bad thing to own many credit cards.

When credit cards came into existence, it was sort of seen as a status symbol and were perceived to be something that only rich people could possess.

The concept of swiping the card today to buy something and to pay the bill later sounded too good to be true. But it was true and many people, especially youngsters, took advantage of it.

According to Statista, nearly 62 million credit cards were in use in India in the financial year 2021.

Apart from subscribing to more credit cards, people are spending more as well. Data released by the Reserve Bank of India showed that credit card spending touched a record in May, as it stood at ₹1,14,000 crore, a jump of 8% month-on-month and 118% over May 2021.

So, more people are using credit cards and they are also spending more. Most people have credit cards but they still don’t understand how they work. Let us explain it to you.

How Do Credit Cards work?

A credit card is a type of unsecured borrowing and it is an easy way to get a short-term advance. When you apply for a credit card and the bank issues you one, you will get a fixed credit limit with it.

This is the total amount of credit that the financial institution is willing to give you and you can use your card to spend up to that much money.

When you swipe your credit card at any store, your card details are sent to both your lender and the merchant’s lender. Your lender will verify your information and authorize or decline your transaction.

If the transaction is authorized, your lender will pay the merchant’s lender and the amount of available credit in your credit card account comes down.

Also, with credit cards, come credit scores, and here’s how they work.

What Is Credit Score?

A credit score is a number that is determined by banks and other financial institutions. It is meant to show a person’s creditworthiness. In other words, it shows a person’s ability to repay a debt, loan, or mortgage.

A credit score is usually expressed as a three-digit number between 300-900. (900 is the highest score possible). Generally, a credit score of 750 and above is considered to be a good score.

There are four credit bureaus in India and they are TransUnion CIBIL, Experian, CRIF Highmark, and Equifax.

Each credit bureau uses its own algorithm to calculate credit scores. It is computed based on several factors like the customer’s payment history, credit utilization, credit age, and credit type.

Are Credit Cards Helpful?

Yes, in many ways. Credit cards are a useful tool to build credit. Since credit cards offer you the flexibility to pay your full balance each month or just pay the minimum, they are a pretty good indicator of how well you manage your credit.

If you pay all your credit card bills on time and do not max out your credit limit, credit cards can help you build a strong credit history.

Credit cards give rewards, usually as cash backs, cash bonuses, airline miles, which you can use to pay for travel, and points, which you can use for purchases.

A lot of credit cards give you rewards when you sign up and they also offer interest-free payments.

When you face any unexpected situation, credit cards can definitely help you out. If you don’t have enough money in your savings account or if you don’t have access to it, credit cards can come and rescue you in those situations.

Can I Get More Credit Cards?

A credit card sounds like it has a lot of benefits. Does this mean you can increase the number of benefits you get by getting more credit cards? No. Here are some reasons why you should not get more credit cards.

More Cards, More Debt

The one thing that you have to remember about credit cards is that you are borrowing that money and you have to pay it back. So, the higher the number of credit cards you have, the more debt you will accumulate.

If you fail to pay your bills on time, your credit score will take a hit and your outstanding balance will also accrue interest. When you have only a few credit cards, it will help you manage your payments easily.

Uncontrollable Spending

Adding to the previous point, when you have more credit cards, it will get difficult to track the purchases done by your credit card.

So, it is better to have a few credit cards, so that you can use them to their fullest potential and also, spend responsibly.

Hard Inquiries

Every time you apply for a new credit card, a hard inquiry will be made. However, every hard inquiry that is made will lower your credit score a bit.

Hence, it is recommended that you refrain from applying for several credit cards in a short period of time – especially if you are not sure whether your card will be approved or not.

Length Of Credit History

Credit scores consider the average length of time you have had credit – not the age of your oldest account. Hence, every new credit card you get reduces the average length of your credit history.

Usually, your score will rebound in a couple of months, but if you frequently open new cars, the negative effect can add up.

Final Thoughts…

Many people think that if they have a lot of credit cards, their credit score will be high. That isn’t always the case. It has more to do with how you use your cards than how many cards you own.

On the other hand, when you have a lot of cards, you have a higher credit limit. So, having a lot of credit cards is a good strategy to keep your utilization ratio low. But you have to remember that you can mess up pretty fast by maxing out your credit cards.

We hope this blog helped you understand more about credit cards and how having a lot of credit cards can affect your credit score.

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