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How many Credit Cards should an Individual have?

Have you ever wondered how many credit cards you should hold? What is the correct number of credit cards you should have? How many credit cards are too many or too less? There is no set number of credit cards that you can own, it is about how you manage your credit cards that counts. Most of the times, individuals carry a stack of credit cards, which they hardly use and sometimes, credit cards are overused, leading to repayment issues. It is always advisable to analyse one’s needs and decide the correct number.

Here’s a list of things that will help you determine if you have too many or too few credit cards:

Do multiple credit cards affect credit score?

Credit card usage have an underlying impact on credit scores. Let’s assume you have three credit cards. This means your credit limit is high as each of the three cards will have a limit of 1.5-2 times your monthly income. Credit institutions suggest using 30% of your total credit to maintain a good credit score.

While minimal usage is one factor that impacts your credit score, there are other factors that need consideration as well. Let’s have a look at them:

  • The major factor that influences your credit score is your payment history. Late payments, defaults, paying just the minimum amount every month, etc. are some of the aspects that make up for a large percentage of your score.
  • The total amount of debt you owe makes up for almost 30% of your credit score. Owning multiple credit cards can lead to higher debts and a negative impact on your score.

More credit cards means more rewards:

Credit card issuers in Singapore offer lucrative offers and rewards which lures customers to sign up. Several credit cards like cashback credit cards, rewards credit cards, travel credit cards, low-interest credit cards, etc. offer a wide range of perks and benefits to different customers. Money-conscious Singaporeans prefer cashback credit cards, while people who like to travel may prefer a travel credit card, which can earn them miles and perks with every dollar spent.

Depending on your lifestyle, it may be wise to focus on three to four credit cards and use them for most of the purchases. Spreading your expenses over these cards will help you earn more rewards points and benefits and maintain a good credit history.

When should you get more credit cards?

If you are good at tracking your expenses and know how to optimize your finances, then you may be able to afford more than one credit card. In most cases, the first credit card that a Singaporean holds is a cashback credit card for expenses like groceries and utilities. If you spend most of your income on restaurants, there should be a dining credit card in your wallet. If you are more likely to spend on travel, then a travel credit card will be useful.

When should you own a few credit cards?

All credit cards have their own billing cycle, which activates from the time you start using them. Banks will give you 27-31 days to repay the entire bill, before imposing an interest rate. If you own a couple of credit cards, then all you need to remember are two billing cycles. If you own more than two credit cards, you may get muddled and miss a cycle. This would invite late payment penalties. The problem with having too many credit cards in your wallet is that your credit score may go down. This score is very important as it determines your creditworthiness. Keeping a healthy score means easy approval of loans like home loans or education loans.

Handling your credit cards:

Maintaining multiple credit cards and using them effectively can benefit you in the long run. Whether you have one or more credit cards in your wallet, you need to make sure that you have a system in place to pay your bills on time and in full every month. One easy way to remember to pay your bills is to set up a GIRO deduction of your card bills. All you have to do is to fill up an interbank GIRO form to link your designated bank account to your credit card. In this way, your bill amount will automatically be deducted from your bank account every month. However, you must ensure that you have enough cash in your bank account to repay your bills. Failing to do so may incur late payment fees or high interest charges.

Credit cards should be used as a mode of payment:

All credit cards should be used as a mode of payment only. Credit cards give you discounts, air miles, and rewards when you purchase using them. The interest rate on a credit card is between 24% p.a. and 29% p.a. Hence, it is advisable not to use your card as a mode of credit. Place your card on a 0% interest instalment plan while making large purchases so that you can avoid late fees or high interest rates. Good money management habits can also help you avoid debts.

Pros of Having Multiple Credit Cards

The following are some of the advantages of having more than one card:

More Benefits and Rewards

This is one of the most obvious benefits of having multiple credit cards. Usually, cards have different kinds of rewards programmes. Different cards also offer rewards on different spend categories. For example, one card may give you more points on grocery shopping, while another one will give you more on online shopping.

By matching your spending with the reward earning criteria, you may earn more reward points than you would with one just one credit card. There are some people who get more than one card to maximise the rewards earning capacity that their monthly spending can get them. But keep in mind that managing many cards can be extremely tricky and land you in financial problems if you’re not careful.

Transfer Your Balance at Low Interest Rates

Another advantage of having multiple credit cards is that it might help you ease the burden of having unpaid card bills. Some issuers let you transfer your unpaid balances on one card to another card that charges a lower interest rate, which considerably eases the repayment burden on you. In fact, there are some banks which even waive off any charges for the first couple of months.

Having said that, having many cards can be a reason for you having a lot of unpaid bills in the first place. So if you’re in a position like this, consolidate all your unpaid card bills and pay them off as soon as possible. It is also important to not make balance transfer a habit, as it may negatively impact your credit score.

Alternative Payment Option

Using “plastic” is easy when it functions correctly. Most of us have faced a situation when due to a technical error our card could not be read or got declined. This is when having multiple credit cards comes in handy. You can use your alternative card to complete the transaction, instead of using cash. This is particularly helpful when you are travelling, or in the case of an emergency where you don’t have immediate access to cash.

Cons of Having Multiple Credit Cards

Sure, there are a few advantages of applying for more than one card. But there are some serious downsides to it as well. Take a look at a few reasons why you shouldn’t have more than one card at a time:

Risk of Spending Unnecessarily

One of the risks associated with having multiple credit cards is that you might tend to overspend.  More credit limit means more spending power, but, you should be more responsible with this power. Having one card itself is difficult for people to keep their spending urges under control. Therefore, having multiple cards may only make this all the more difficult for you. The worst part is that you may not even be aware of how much you’re spending because the money isn’t going directly out of your savings account. This can result in an amount that you may not be able to pay off when you get your bills at the end of the month.

Missing a credit card payment can turn into a large debt while you are least expecting it. It is advisable to have multiple credit cards, only if you’re sure that you can pay off the remaining balance in full each month.

Multiple Bills Can Be Difficult to Keep Track of

One important thing to remember is the more credit cards you have, the more the number of bills you’re going to have to pay. It is generally very difficult to manage a number of bills and this might lead to delays in making the monthly payments on time. This can lead to penalties in the form of high interest rates. Keep in mind that credit cards charge exorbitant interest rates if you don’t pay your bill on or before the due date. This is something you definitely don’t want. There are thousands of cardholders around the world who have fallen into the vicious cycle of credit card debt simply because they missed paying a few bills.  

So, if you’re too busy to keep track of multiple bills or if you’re not sure if you can handle more than a single card at a time, it’s best that you apply for only one card.

Risk to Your Credit Score

One of the biggest negatives of not paying your card bills on time is the impact it has on your credit score. Also, your credit score might get adversely affected if you apply for many lines of credit in a short period of time. Every time you apply for a card, the bank will check your credit report. When you have multiple lines of credit open in your name at the same time, card providers may see this as a sign that you are piling on more debt than you can handle.

Further, how much credit you make use of every month will also impact your credit rating. You might want to keep your credit utilisation below 30% to avoid negative effects on your credit.You are the only person who has an idea of how you handle your personal finances. If you understand your financial situation very well and believe that it is sound enough, you could reap the benefits that come with having multiple credit cards. On the other hand, if you are new to the world of finance or if you feel that you will not be able to handle multiple credit lines, it is better if you just stick to one card. The bottom line is this - being financially responsible can go a long way in keeping you out of debt. Be wise when you use your credit card.

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