Credit cards user? This is one tip that you just cannot afford to ignore

A credit card is an instrument which enables the cardholder to borrow money from the bank or the lending institute which issued the card, to carry out digital transactions. For the financial service offered by a lending institution, it charges interest on the use of credit cards.

You may have more than one credit card, depending on financial needs and spending habits. But what is the magic number? How many credit cards does a person actually need? But before understanding how many credit cards a person should have, we need to first discuss how borrowing through a credit card works. Yes, it is critical for you to know this too.

A bank (or any other money-lending platform) approves a cardholder’s loan after assessing creditworthiness. The creditworthiness of a borrower is determined by the evaluation of their credit history and is expressed in terms of credit score, which indicates the probability of a borrower repaying his or her debts. That is, the higher a cardholder’s credit score is, the higher their chances of getting their loan approved.

Credit scores suffer when people use their credit cards irresponsibly and are not diligent in paying off their debts. Some of the ways of maintaining an approved streak of credit score or improving it are keeping low credit card balance, paying bills on time, and limiting the number of credit cards to avoid being overwhelmed by high interest rates.

Keeping these points in mind, let us move on to discussing the question at hand.

It is generally advised for a person to use just one credit card. It is so because it can be very tempting to keep using the card which may cause you to overshoot your balance. Credit cards are used basically for two reasons: the convenience of conducting commercial transactions and for improving credit score. And over and above the credit limit hurts the credit score.

On the other hand, if you are an experienced card user, then any number which works for you is the answer. In the hands of a restrained cardholder, having multiple cards increases the credit limit by spreading out the balance on the cards, thus enabling a healthy debt-to-card ratio. However, one can also approach their banks to get their credit limit on their existing card increased instead of applying for another credit card as it has the same effect.

As established, carrying multiple credit cards is a double-edged provision. It can both cause you to increase your existing credit score or ruin it. But if you happen to have a long and flawless credit history, then opening more than one account might indeed be a fruitful decision.

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Other benefits that you can enjoy by carrying more than one credit card include the availability of low-interest rate, facility of transferring a balance to a 0% interest card, along with other rewards offered by the card issuer.

by Anuj Kacker, Coo and Co-Founder, MoneyTap