Dear subscribers, Here’s an interesting article which caught my eye last week. It is about credit cards…which most of us tend to misuse. Read the following story of Mumbai based Smita Nadkarni and her unique hobby which put her through lot of stress & trauma. And trust me there is a lesson here which all of us need to pay heed.

She has a unique hobby: collecting credit cards. The 31-yearold architect with a leading real estate firm was open to any new card offering incentives on purchases. “I would get a high seeing so many credit cards in my wallet. Since there would be no joining or annual fees, I thought I would not lose by picking up more and more cards,” she says. The siren song she heard was the promise of saving money on fuel, flights and more, while collecting points that could be redeemed from an attractive catalogue.

She is quickly realising the error of her ways. “My credit card dues have shot up so high that I am thinking of taking a personal loan to pay the bills. I might even close all the cards,” she explains. How did the situation deteriorate to this extent? Nadkarni lost track of the purchases she was making on all the cards and, worse, she paid only the minimum amount due on each bill. The rolled over credit has now piled up to an unmanageable level.

Does this mean one should not have multiple cards? While there is no such rule and having more than one card is not necessarily a bad move, it is best to avoid such a situation. “Having two credit cards may prove to be a safe option,” says Pralay Mondal, senior group president, retail and business banking, YES Bank. So, in case one card does not work due to some technical reasons, you have a stand-by option to fall back on.

It is important to remember that multiple cards from different banks will translate into multiple bills each month. If you have more than one card, there is always a possibility of misplacing a bill or missing out on a payment. So, one should opt only for as many cards as one can manage easily. While having multiple cards does not impact the creditworthiness, having a high balance on too many cards may not be prudent unless it is supported by an adequate income.
So, if you regularly use up to Rs. 90,000 out of a monthly credit limit of Rs. 1 lakh, your credit score may be taking a hit.

Managing multiple cards

If you do want to have more than one card, how should you handle them? Says Mohan Jayaraman, man aging director, Experian Credit Information Co. of India, and country manager, Experian India: “You could choose more than one co-randed card as per your spending preference and link it to your savings account.

In this way, you could get a consolidated bill in case you forget to make a payment on any particular card.” Harshala Chandorkar, senior vicepresident, consumer relations, Credit Information Bureau of India (Cibil), offers a simple solution to avoid the problem of missed bills—make all credit card payments online, thereby avoiding late fees. “The customer could also set a monthly reminder on his calendar

or mobile phone to make timely payments,” she adds. The balance transfer option provided by some credit cards is a big lure, but Mondal cautions against availing of this offer randomly. “Some customers use different credit cards to transfer balance from one card to another to rationalise the interest payment or protect their creditworthiness. However, this is a dangerous game if played for too long. This either over-leverages the customer or impacts his financial discipline and, in the end, it impacts his credit score,” he explains.

If you own multiple cards, and prefer splitting your purchases across all of them, keep track of all your expenses, say experts. “It is also advisable to access and review your credit report frequently as it will give you a detailed status of all your credit accounts,” says Chandorkar.

 Pick to suit your needs

“Having a credit card is useful to build your credit score. How you use your card, repay your  dues and spend will impact your credit history and serve as a useful platform to build  your  credit score,” explains Adhil Shetty, chief executive officer, Bankbazaar.com.

If you have been using credit cards smartly for over a year, you would have built a good  credit  history. “This will actually help you get all future loans easily. As you have shown a  disciplined  track record on an unsecured form of credit, it will provide the lender with  additional  confidence on your repayment capability,” says Jayaraman.

However, instead of blindly picking the first credit card offered to you, take time to analyse  your spending pattern and find the credit cards to match it. “There are reward-based cards  and  cash-back programme-based cards. The former would appeal to customers who have  equal  spends across all categories,” says Sumit Bali, executive vice-president, Kotak  Mahindra Bank.  In this category it is the premium cards like platinum credit cards offered  by most banks that  stand out.

“The cash-back cards are given only on specific categories, so first ascertain whether you are likely to have high spends in these,” adds Bali. Then there are the several co-branded cards flooding the market, each offering different incentives on various services. For instance, if you are a frequent flier with a definite preference for a particular airline, a co-branded card with the said airline will be best suited to your need. The same logic applies to hotel co-branded cards. So if you want more than one card, pick wisely.

Source : ET Wealth, 24th March 2014.