In the last few years, banks have introduced brand-specific (co-branded cards), business group-specific, category-specific, etc., credit cards. While each credit card may offer good benefits, the benefits are restricted to the specific brand, business group, or category. So, these cards cater to an individual’s specific need(s), but not all needs. Hence, to cater to all their needs, individuals need to have multiple credit cards.
In this article, we will understand whether an individual must keep multiple credit cards, their benefits, and whether it will impact their credit score.
Need for multiple credit cards
Some individual credit cards, like the HDFC Bank Infinia Credit Card or the ICICI Bank Emeralde Private Metal Credit Card, may cater to all or most needs of an individual. However, these credit cards are invite-only cards and have high-income eligibility criteria. Hence, these credit cards are out of reach of most individuals.
Amongst other credit cards, each card may cater to a person’s specific need(s), but not all. Hence, an individual may need to build a portfolio of 3-4 credit cards to cater to all or most of their needs.
These days, banks are introducing brand-specific (co-branded cards), business group-specific, category-specific, etc., credit cards. While these individual credit cards may be highly rewarding for a specific need, the reward rate for all other expenses may be pretty average. Hence, an individual may need to build a portfolio of 3-4 credit cards to earn an optimum reward rate/value back on most of their expenses.
Let us look at some of these credit cards:
Co-branded credit cards: Banks partner with a specific brand and launch a credit card that offers a higher reward rate for spending on the partner brand. One of the most popular co-branded credit cards includes the Amazon Pay ICICI Bank Credit Card. The card offers Prime members a 5% reward rate on Amazon purchases. However, the reward rate on non-Amazon purchases is low.
Business-group-specific credit cards: Banks partner with a business conglomerate and launch a credit card that offers a higher reward rate for spends on the partner group companies. One of the most popular credit cards in this category includes the Tata Neu Infinity HDFC Bank Credit Card. The card offers an up to 5% reward rate (in the form of Neu Coins) for purchases on the Tata Neu App and partner Tata Brands. When a purchase is made through the Tata Neu App, the member gets an additional up to 5% Neu Coins in their NeuPass. Thus, combining the card and NeuPass benefits, a member can get up to 10% Neu Coins.
Category-specific credit cards: These credit cards provide a higher reward rate for spends on a specific category. Travel credit cards are one of the most popular category-specific credit cards. For example, the Axis Bank Atlas Credit Card and the HSBC TravelOne Credit Cards are popular in the travel category. Similarly, the Cashback SBI Card is popular in the cashback category.
UPI credit cards: UPI spends is something most individuals do, but get either low or no rewards for it. However, some credit cards give good rewards on UPI spends. For example, the Yes Bank Klick Credit Card provides Neon members up to 5% cashback for UPI spends through the Kiwi App. Similarly, the Axis Bank SuperMoney RuPay Credit Card provides up to 3% cashback on UPI spends through the super.money App.
Some other needs for which some individuals may keep a specific credit card include BOGO offer on movies, complimentary airport lounge access, zero mark-up on forex spends, high reward rate/cashback on utilities, dining, fuel spends, etc.
Impact of multiple credit cards on credit score
Every new credit card you apply for usually results in a hard inquiry on your credit profile. A hard inquiry may lead to your credit score falling by a few points. However, the fall in credit score is temporary and may recover in a few months, provided the other factors impacting the credit score are taken care of.
You may apply for one credit card at a time and wait for the bank’s final decision. Maintain a decent time gap between two new credit card applications. Applying for too many credit cards in a short time span may portray a credit-hungry behaviour in front of the bank. As a result, the bank may reject the application, which may adversely impact the credit score.
Every new credit card you add to your portfolio comes with an additional credit limit. When your credit limit increases at a higher rate and expenses increase at a lower rate, your credit utilisation ratio falls. A credit utilisation ratio of 30% or lower contributes positively towards improving your credit score.
Once you add a new credit card to your portfolio, you may need to close an existing credit card. The age of a credit instrument is one of the factors in calculating the credit score. The older a credit instrument, the better it contributes towards improving your credit score. Hence, when you close an old credit card, it may impact your credit score adversely. The credit score may fall temporarily by a few points. However, the credit score may recover over the next few months, provided the factors impacting the credit score are taken care of.
How many credit cards should an individual keep?
We have discussed how an individual may need to keep multiple credit cards to take care of their various needs. So, the question that will come to your mind is how many credit cards you should keep. A portfolio of 3-4 credit cards may be optimum and take care of all or most of an individual’s needs.
Keeping more than the optimum number of credit cards may involve time and effort to manage them. Because of a higher number of credit cards, you don’t want to be in a position where you stop and think which credit card to use before every payment.
With a higher number of credit cards, you will have to keep track of multiple dates for paying the monthly bills. Missing even one credit card bill payment can damage your credit score badly. Hence, keep only 3-4 credit cards in your portfolio and, wherever possible, opt for auto-payment of monthly bills. Making timely bill payments, maintaining a credit utilisation ratio of less than 30%, etc., will help you maintain or improve your credit score.
Multiple credit cards can provide a decent return on overall spends
We have discussed how having 3-4 credit cards in your portfolio can be optimal. Your portfolio can have one credit card for UPI spends, one co-branded/category-specific card for the brand/category where your spends are high, one card for spends in other categories, and a card for a specific need (lounge access, fuel spends, BOGO offer on movies, zero forex mark-up, etc.).
These will take care of all or most of your needs. Be clear on the use case(s) of each credit card in your portfolio. Don’t over-optimise, as it may not be worth the time and effort involved. Your aim should not be to earn the highest return on spend in every category, but to earn an overall decent recent on overall spends in all categories.
Gopal Gidwani is a freelance personal finance content writer with 15+ years of experience. He can be reached on LinkedIn.
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