Do multiple credit cards improve or hurt your credit score? Find out

In the country, an increasing number of borrowers are using credit cards to meet day-to-day expenses. A recent report highlighted that over 42% of credit card users spent more than ₹50,000 to meet festive expenses. This seemingly easy credit can further fuel the desire to have more than one credit card.

Still, it is essential to keep in mind that having several credit cards can have both positive and negative effects on your credit score. Essentially, it depends entirely on how these credit cards are managed.

How can multiple credit cards boost your credit score?

Well-planned use of multiple credit cards can strengthen your credit score by:

1. Lowering your credit utilisation ratio: This means that a higher cumulative credit limit, combined with sensible and low usage, can improve your credit utilisation ratio. This improvement can contribute positively to your credit score.
2. Enhancing your credit mix: When you use different credit cards for various purposes, such as shopping, travel, and fuel charges, it adds to the diversity of your credit profile and is a clear signal of financial responsibility.
3. Boosting repayment history: When you make regular, on-time repayments across various credit cards, loans, and mortgages, it demonstrates credit integrity and honesty on your part. This boosts your creditworthiness and keeps your credit profile in a positive light to lending institutions.

What are the risks of having multiple credit cards?

Holding multiple cards without any vision and proper planning can also have a damaging effect:

1. Late or missed payments on even one credit card can seriously damage your credit score.
2. When you submit applications for several credit cards in a short span, it brings down your credit score and average credit age. Not only this, but it also triggers ‘hard checks’ on your credit profile.
3. When you spend close to the permitted credit limit on multiple credit cards, it is a clear signal of overdependence on credit. It reduces your score and makes it more complicated to secure future loans.
4. It may seem too easy, but managing multiple credit cards can turn out to be extremely challenging as well. For example, if you close out on long-standing credit cards to cut expenses, such a step can shorten your credit history and bring down your total available credit limit.
5. That is why having multiple credit cards requires a devoted commitment to on-time repayment, sensible borrowing at all times, and setting an automatic debit option to meet pending debt obligations.

Tips to manage multiple credit cards

• Focus on keeping total utilisation below 30% of your combined limit.
• Never miss any debt payment due dates, and clear pending payments quickly.
• Think through new loans and space out new credit applications.
• Try to keep older cards active unless annual fees and other charges are high.
• Go through your credit report on a consistent basis to spot mistakes.
• When in doubt, discuss your finances with a certified financial advisor.

Multiple credit cards can have both positive and negative implications for the holder. The implications on a fundamental level depend on the way these cards are handled.

Furthermore, before using any credit cards, it is essential to understand that they come with inherent risks, including the possibility of debt accumulation, high interest charges, complex fee structures, and financial fraud. That is why new credit cards should only be applied for after proper due diligence and consultation with certified financial advisors.

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Disclaimer: Mint has a tie-up with fintechs for providing credit; you will need to share your information if you apply. These tie-ups do not influence our editorial content. This article only intends to educate and spread awareness about credit needs like loans, credit cards, and credit scores. Mint does not promote or encourage taking credit as it comes with a set of risks, such as high interest rates, hidden charges, etc. We advise investors to discuss with certified experts before taking any credit.