Credit card offer for you!

“The credit card business is super-competitive right now,”.  “People are spending again. Banks are lending again. That’s all led to better deals for credit card customers willing to do their homework.”
Rather than getting a credit card from your bank, or accepting the first credit card offer you receive in the mail,  suggests getting out there and actively searching for the best deals for you. “Go online and see what’s out there. There are plenty of deals to be had,” 

How to find the right credit card for you?

Comparing credit card offers isn’t just about looking for certain criteria. The first step is understanding yourself and your needs. “Why do you want the card?” he says. “Are you looking for rewards? Are you trying to rebuild your credit? Do you want a balance transfer?”

The use to which you plan to put the card should be the first consideration when comparing credit card offers. “Knowing what you want from the card is the key to getting the most from your card. “If you never fly anywhere, you probably shouldn’t bother with an airline card.” Start out by comparing cards that meet your needs, and don’t waste your time with cards that don’t fulfill a purpose in your overall financial plan.
Once you know what matters most to you from your card, it’s time to look at other factors. “Pay close attention to the costs associated with the card,”. Some of the costs of credit cards include:

• APR
• Annual fee
• Balance transfer fees
• Foreign transaction fees

These fees vary widely, according, and you should realize what you’re getting into. If you know that you will occasionally carry a balance, the APR is very important. You should also consider how many rewards you are likely to earn in a year from regular purchases you make. An annual fee might not be a big deal if you have the potential to earn higher rewards that aren’t capped. With the right strategy, your rewards can offset your annual fee and still help you come out ahead in rewards than what you would have earned with a card without an annual fee.
If you are getting a card for a balance transfer, one of the considerations is how long the transfer period lasts. A card with a promotional period of 18 months can be of greater benefit to you than a card with a nine-month intro period. If you know you can pay off the balance in 18 months, it isn’t as important that the regular APR is higher on that card if the nine-month card will start charging you interest much earlier.
                      

 Perks that come with a credit card should also be considered. If you are choosing between cards that have similar costs and requirements, turn to the perks to help you make a decisions. “Is there a signup bonus? Does it come with a free credit score? Will the issuer allow you one late payment without charging a fee?” he says. “Are there special perks such as a concierge and travel discounts?”

What to do if you are rejected

Of course, applying for a credit card doesn’t automatically mean that you will be approved. “If you get rejected, there’s no need to panic,”. “You should try to find out why it happened.”
He suggests reading the rejection letter. You can even call the bank for more information. The rejection letter should include information about why you were turned down, whether it was because you don’t have a long enough credit history or whether your credit utilization is too high.  That sometimes the reason given points to a mistake on your credit application or in your credit report. “Fix those problems, and if there are larger issues, commit yourself to putting in the work to build your credit in the coming months.”
Using tools like  can also help you identify cards that you are more likely to qualify for. This provides you with a realistic idea of what to expect.
You might want to apply for another card if you are rejected, but it’s a delicate balance. “Applying for one card after getting rejected for another is fine,”. “Applying for five others is not a good idea. It can hurt your credit, and issuers can view it as desperate.”
The process of applying for a new credit card isn’t just about trying to get something you want. You also need to consider the implications of your move, since your credit will be impacted by your inquiry. If you don’t qualify for the card you want, take the time to evaluate your situation and work toward getting your credit in good shape so you qualify next time. “It’s best to take a more strategic, measured approach to credit card applications.”

Visit: www.cibilconsultants.com
Source: Secondary

Are you using many credit cards?

A credit card is a loan with a difference. Here, you get credit while you go spending or paying bills. However, the interest rates on credit cards are much higher than that on other loans. The more credit cards you have, the more you may be tempted to spend and the more difficult it will become to keep a tab of how much you have spent and when the repayments are due. Do remember that credit cards are the most expensive types of loans available in the market, and whether you miss your payment deadlines due to an oversight or because you have inadequate funds, you will have to pay heavily.

Credit card cautions

If you plan wisely to use each card to its advantage, but also keep a check on the rising charges so that the debt remained under control. Maintain your credit score over a period of time so that you could remain in the good books of the credit card companies. This is exactly what multiple credit cards holders should do to disentangle yourself from debt. However, if you cannot religiously keep a track on your spending or monitor each card prudently, then multiple credit cards can become a hindrance rather than an aid to money management, so step with caution depending on the kind of spending habits you possess!

Impact on credit report

While credit cards are extremely handy pieces of plastic, ideally, banks in India haven’t set any obligations on the number of cards you can carry. In India, you can easily find customers using four credit cards and the ones that don’t even have a single card. Due to the fact, your CIBIL credit score could be strained due to irrational credit card usage. In actuality, you must keep the number of credit cards which you can afford. Avoid using more than one card if you don’t have a good monthly income source.

Monitor your credit limit religiously

Your lenders will see you as a high risk candidate if you have high amount of outstanding balance to be paid. In fact, credit cards are the easiest way to fall into a debt trap that is a situation in which you borrow just to maintain your existing borrowings. So, to be on the safer side, you need to keep your outstanding balance about 10% to 30% of the overall credit limit. By doing this, you’ll get some relief and will also able to borrow more funds, if the need arises.

Never close your old card

Your oldest credit card age will do a significant role when the banks decide to open a new account under your name. In such cases, you can earn more points for keeping a long-established relation with the bank. The credit history of your old card is always better; and for taking loans, you could use your old credit card. If you wish, you could keep another card also for several other references and shopping online. Don’t ever close down your good old credit cards, even if you’re not using them frequently because they will definitely work towards building your good credit history.

Opt for right Credit Card

The credit card market in India is overwhelmed with attractive offers and deals that are quite tempting for the customers. As per the needs, every sensible card user can acquire several credit cards frequently. If you’re a constant traveller, then you could go for a travel credit card. Petro cards and special cards for getting discounts on restaurant bills are also highly popular in India. Whoever looking forward to multiple card options can decide buying these credit cards for a suitable experience.

Ideally, cards should be used as a temporary substitute for carrying cash. And, if that is the only motive you have when you carry a credit card, you will find that having one or at most two is quite sufficient.

Source- Secondary

Check the categories and know debt for better benefits

At one point in our lives, many of us switch to debt as a method for making large purchases that we usually could not afford under normal circumstances. While encountering debt, you should know that there are several forms of debt: revolving debt, unsecured debt, secured debt and mortgages. It’s essential for you to review each category of debt thoroughly as not all debts are created equally and therefore some are considered to yield better benefits than others.

Revolving Debt

Revolving debt is an agreement made between a bank and customer that guarantees a maximum amount that can be loaned to the customer. Along with the commitment fee there are also interest expenses for corporate borrowers and carry forward charges for consumer accounts.  It is usually used for operating purposes, fluctuating each month depending on the customer’s current cash flow needs. Revolving debt can be unsecured, as in the instance of a credit card, or secured, such as on a home equity line of credit.

A line of credit and credit card are examples of revolving debt.

Secured Debt

Assets backing debt are considered security, which means they can be claimed by the lender if default occurs. A credit check is necessary for the bank to judge how responsibly you handle debt, but if you default on repayment, the bank seizes your assets, sells it and uses the proceeds to pay back the debt.

For instance, if you require a loan to purchase a car, the lender supplies you with the cash necessary to purchase it but also places a lien, or claim of ownership, on the vehicle’s title. In the event you fail to make payments to the lender, it can repossess the car and sell it to recoup the funds.

Unsecured Debt

This debt is not backed by an underlying asset. When a bank makes a loan with no asset held as collateral, it does so only on the faith in your ability and promise to repay the loan. It presents a high risk for lenders since they may have to sue to get the money they’re owed if the borrower doesn’t repay the full amount owed. As a result of this high risk, unsecured debt tends to come with a high interest rate.

Some instances of unsecured debt includes credit card debt, medical bills, utility bills and any other type of loan or credit that was extended without a collateral requirement.

Mortgages

Mortgages are the most popular form of debt and largest debt that many consumers confront in their lives. Mortgages are used by individuals and businesses to make large real estate purchases without paying the entire value of the purchase up front. Over a period of many years, the borrower repays the loan, plus interest, until he/she eventually owns the property free and clear. It typically carries the lowest interest rate of any consumer loan product, and the interest is tax deductible for those who itemize their taxes.
Visit: cibilconsultants.com
Source: Secondary

Learn how Annual Percentage Rate (APR) works

Loans or credit agreements can vary in terms of interest-rate structure, transaction fees, late penalties and other factors. A standardized computation such as the APR provides borrowers with a bottom-line number they can easily compare to rates charged by other potential lenders. The annual percentage rate, or APR, is the cost per year of borrowing. By law, all financial institutions must show customers the APR of a loan or credit card, which clearly indicates the real cost of the loan.

Annual percentage rate versus Interest rate

APR is not the same as the interest rate on a loan. Loans charge an interest rate, but usually also charge other fees, such as closing costs, origination fees or insurance costs, which are typically wrapped into the loan. Credit card companies are allowed to advertise interest rates on a monthly basis, but are also required to clearly state the APR to customers before any agreement is signed.

If two loans have the same interest rate, but one has much higher fees than the other, simply shopping by interest rates won’t give an accurate comparison of the loans’ true costs. That’s why there is the APR. By factoring in other fees, APR gives a more accurate estimate of the cost per year of a loan. For this reason, the APR is generally higher than the interest rate.

Conclusion

Unfavourably, not all financial institutions include the same fees in their APR calculation, so APRs are not always a perfect comparison tool. When comparing loan or credit card APRs, ask which fees are included, so your comparison is accurate.

Visit- www.cibilconsultants.com
Source: Secondary

Is Your Home a Collateral for Other Loans?

Collateral means to pledge an asset as a security against repayment of a loan. A collateral can be forfeited if there is a default on the loan. When you take Home Loan, you pledge your Home as a collateral for repayment of a Home Loan. But what if bank say that besides Home Loan, you have to give your Home as a collateral for any other loan or borrowing from the bank. On top of it, you also provide the commitment that this clause will cover all the past, present or any future borrowings from the Bank. Sounds Scary !!! But it is TRUE. Knowingly or Unknowingly, whenever you avail Home Loan, under Home Loan Agreement you also agree to clause “Indebtedness of the Borrower“. This is also known as Cross Collateralisation. By agreeing to this cause, you give your Home as a collateral for other loans or borrowings from the bank. Not all Home Loan Providers include this clause, but experts observed this clause in Home Loan Agreement of most of the Banks.

Ref to the sample copy of Home Loan Agreement of an Indian bank available online. Refer Article 1, clause 1.1, sub-clause “m” on page no 4. The definition is as follows

“Indebtedness of the Borrower” means any indebtedness of the Borrower to the Bank at any time for and in respect of monies borrowed, contracted or raised (whether or not for cash consideration) or liabilities contracted by whatever means (including under guarantees, indemnities, acceptance, bond, credits, deposits, hire purchase and leasing by the Borrower or by a person or entity related to or connected with the Borrower); and shall also be deemed to include any indebtedness of any associate or affiliate of the Borrower or any entity related to or connected with the Borrower, towards the Bank or any associates or affiliates of the Bank.”

To understand, let’s take an example of one lady. Her husband expired 4 years ago which put the entire family into financial problem. She was serving Home Loan from her salary. For her daughter’s education, she took the personal loan from the bank. Her Home Loan provider “Bank” happily approved the personal loan without any hassles. As her Mother in law is Class I legal heir of her husband’s wealth therefore under family settlement it was decided to sell the house. The proceeds will be divided equally between her and her Mother in Law. Recently, she closed the Home Loan but to her surprise Bank refused to issue NOC against Home Loan. Without NOC, she cannot sell the property. Bank put a condition to clear Personal Loan before they issue NOC for Home Loan. In short, Bank revoked Indebtedness of the Borrower clause in the Home Loan Agreement. In laymen terms, besides home loan her home is also a collateral for Personal Loan without her knowledge. Legally, the Home Loan Agreement is signed by her therefore she cannot claim ignorance.

Implications of Home as Collateral for Other Loans:

1. Indebtedness of the Borrower usually covers all loans/borrowing of a borrower i.e. Past, Present & Future from the bank.

2. Your Home will be collateral till you clear all the balance outstanding against all the loans with the banks.

3. The bank may include the clause to cover its associates, affiliates or subsidiaries under this clause. What it implies is that suppose you availed Home Loan from Bank A. Now, you availed Consumer Loan from ABC Finance Limited. ABC Finance Limited is a subsidiary of Bank A. In this case, your Home will also act as a collateral for your Consumer Loan.

4. Though you are securing your unsecured loans like Personal Loan, Consumer Loan etc by giving your Home as a Collateral. Unfortunately, you are paying higher interest rate for unsecured Loans. Normally loans which are backed by collateral are secured loans and charged at lower Interest Rate.

5. Bank reserve right to set off any amount against other borrowings without any intimation and consent of the borrower. For example, person defaulted on the credit card in past. It was reflecting in his CIBIL score also. Both credit card and Home Loan was availed from the same bank. Now the bank was smart enough and adjusted few Home Loan Installments against the credit card default. Normally, the borrower doesn’t check Home Loan statement but while going through some other details. As the balance outstanding against credit card was cleared willingly or unwillingly him. When we requested to update the same in CIBIL. Bank replied that since the account is closed therefore Bank cannot update the same in CIBIL. On raising the dispute, Bank referred the relevant clause in Home Loan Agreement.

6. Bank also reserves the right to encash PDC’s (Post Dated Cheques) deposited for availing Home Loan for other loans with the bank.

In short, by availing Home Loan from the bank you are giving your Home as security or collateral for all the Borrowings/Cross Default. All the amounts due to the bank or its affiliates/associates/Subsidiary will be due under Home Loan Agreement. It will be backed by Home as a collateral.

How to Safeguard your Financial Interests?

Though Home Loan agreement is standard format and bank will not exclude clause related to Indebtedness of the Borrower for one borrower. It is important to follow these points to safeguard your financial interests.

1. Read the Home Loan Agreement Carefully: You should read the document before signing. If you don’t understand certain clauses then it is always advisable to take professional help. In case, you have any apprehensions about the clause related to Indebtedness of the Borrower i.e. giving your Home as collateral for other loans then check other options. Before you apply for Home Loan, you should ask for a sample copy of Home Loan Agreement. If you will back out at later stage then it may impact your CIBIL Score.

2. Selection of Home Loan Provider: You should select your Home Loan provider carefully. Even if you have agreed to the inclusion of Indebtedness of the Borrower clause then you should ensure that you don’t have any existing financial relationship with the bank. In future also you should not avail any financial products especially loans, credit card, overdraft etc from the same bank.

3. Check your Statements Regularly: Many people have a habit of not going through the monthly/quarterly statements, but it is important to check them as and when you will receive. For any suspicious transaction, you should immediately bring to the notice of the bank.
Visit: www.cibilconsultants.com
Source: Secondary

Check your Credit Utilization if you have low score!

Low CIBIL Score is now synonyms to Loan or Credit Credit Card Rejection. There is a common perception that Low CIBIL Score is only due to default or delay in payment of credit card bill or loan EMI. It is not 100% correct. Low CIBIL Score has very strong co-relation with overall credit eligibility. “Credit Eligibility” means max credit that a person can avail and “Credit Utilization” is actual credit availed. It is important to maintain a fine balance between credit eligibility, credit requirement & credit utilization. Optimum distribution of credit is essential depending on your current requirement. Currently if one don’t need any loan or credit card in near future then it is beneficial for him to increase credit limit of my  credit card. If he utilize max 30% credit limit on m-o-m basis then it will help him to improve my CIBIL Score. Contrary If  he is planning to apply for Home Loan in 6 months time then he should start fine tuning his credit eligibility to free some credit limit and increase overall credit eligibility. It will also help him to improve his CIBIL Score, thus increase his Loan eligibility. In short, Lower the current credit utilization, higher the Home Loan eligibility. At the same time, higher current credit utilization will result in Low CIBIL Score.

Credit eligibility can answer why some people with Low CIBIL Score get Home Loan whereas Home Loan of others with CIBIL score of more than 750 is rejected. There is no thumb rule that CIBIL Score of 750 guarantee home loan. Lets understand with an example that Why Low CIBIL Score is not a reason to worry if there is no default or delay in payment.

Mr. Y applied for Home Loan of 20 lakh and his Home Loan application was rejected. Reason given by bank was Low CIBIL Score. He pressed panic button. He called credit counselor Z and told that he has never defaulted or delayed any payment then how come he has Low CIBIL Score. He shared his CIBIL report with counselor. When Z saw his CIBIL score and compared his credit behavior with his income level, Z observed he has utilized most of his credit eligibility. Assuming annual income of Mr. Y is 5 lakh then depending on his age and other factors he can avail max credit of 20 lakh to 25 lakh. His low CIBIL Score can be attributed to too many unsecured loans. These loans were education loan, personal loan, being a guarantor of his friend’s Home Loan and a credit card consumed 90% of his eligible Credit limit. Therefore Home Loan of 20 lakh was bound to get REJECTED. Please note that liability of a Guarantor is same as that of a Borrower. If you are a guarantor of 15 lakh Home Loan then a lien of equivalent amount will be put on your overall Credit eligibility. In short, amount will be reduced from what you can avail through credit. After taking some positive steps to free credit limit and once he ceased to be a guarantor of his friends home loan, his Low CIBIL Score improved to 753. Last month, his Home Loan was approved and now he is proud owner of flat in Hyderabad.

Low CIBIL Score is not an overnight phenomena but is outcome of credit hungry behavior.  High credit utilization eats into credit eligibility and directly impact CIBIL score of an individual.
Visit- www.cibilconsultants.com
Source: Secondary  

Catching a Credit Con

When did you last update your e-mail address and phone number with your credit card issuer? Many do not even bother. Now, imagine being billed for fraudulent purchases made from your card.

What do you do? First, of course, you inform the card issuer, who will probably ask you to fill a declaration form. Doing this quickly is important as, according to rules, if the issuer isn't informed within 30 days of you receiving the statement, it is assumed that you have accepted it as accurate. So, if you were out of station and didn't notice it on time, you would be legally bound to pay.

Of course, if you had updated your contacts with the card issuer and got an alert, which comes within minutes of the transaction, you could have called up the issuer immediately and saved yourself the loss.


"Important communication, these days, happens through mails and phones. So, it is crucial that the customer keeps his bank updated so that he can be reached any time for checking a transaction's authenticity." 

COMMON CATCHES
In India, according to a provision in credit card contracts, the card-issuing company isn't liable for any fraudulent transaction unless the customer files a report immediately. Once reported, the card holder is no longer liable. So, be alert and look out for the red flags. Card frauds range from purchases made on lost or stolen cards to phishing, identity theft and traps set up through unsecured Internet transactions.

Skimming or cloning is something to be cautious about, especially when travelling abroad. In this, data in your card's magnetic stripe is recorded when swiped at a machine. This information is then used to make duplicates. It can happen anywhere, at a petrol pump or a restaurant. So make sure the card is swiped in your presence.

"To minimise risk, banks also advice customers to replace cards after trips."

Do you use your card online? Beware of cyber swindles. These involve unauthorised use of card details, such as the card number, the Card Verification Value (three-digit code printed on the back side of the card), to make purchases online.

"One should register for online transaction passwords such as Verified by Visa or MasterCard Secure Code and avoid using public computers. Also, make sure that the transaction happens through a secure website, which begins with HTTP."

Fraudsters also try account takeovers and identity theft. This happens in two ways. One, a cardholders information is stolen and used for transactions where the card's physical presence isn't required, such as online purchases. Two, by placing a request for a new card using the stolen information. Monitoring your credit card report is your best defense.

"Check for unusual transactions, especially small ones, as fraudsters make these to check the card's validity."

Last but not the least, do not fall prey to phishing mails (that appear to be sent by an institution you deal with but are not), SMSes or calls.

FRAUD CONTROL
Usually, banks have dedicated transaction monitoring units and fraud detection systems to analyse suspicious patterns. So, if two transactions are made from different countries with the same card within a short period, the system will highlight this. However, it helps if the customer is also cautious. For instance, opting for cards with signature lamination and a photograph, registering for transaction alerts and transacting only through secured websites are common precautions.

If you are a frequent user, it may make sense to go for an insurance cover to take care of liabilities from loss and misuse. Banks usually have tie-ups with insurers. General insurers also offer standalone credit card policies, which cover all cards held by a customer under one policy. One alert to the insurance company can block all your cards, limiting your loss.

FOR YOUR GRIEVANCES
The RBI has appointed an ombudsman for redressal of complaints which your bank has failed to respond to satisfactorily. A bank must respond within 30 days from the date you lodged the complaint. In case of wrongful billing, the card company should provide documentary evidence within 60 days. If unsatisfied, the cardholder can go to the ombudsman.

Learn more about identity theft at www.cibilconsultants.com

Source- Secondary

Are You A Credit Card Fraud Victim?

Indian credit card holders are increasingly becoming the target of online fraud with thieves using the cards frequently on sites abroad, which raises questions about how secure bank data is. Banks including State Bank of India, ICICI Bank Ltd and Citibank, have been witnessing such kind of fraud.

Says Uttam Nayak, group country manager-India and South Asia, Visa, "You need to be careful while using credit cards for online transactions. Simple things like using a complicated password, being cautious about using your card in a secure computer environment and insuring your credit card can help reduces frauds."

Cases of fraudulent activities abound. The sad part is that your only way out is to get into a loop of justice-seeking that may take years together by which time the money you have lost would lose value and you would have done the running around that's worth much more. A small relief is that your credit score doesn't get affected. Says Mohan Jayaraman, managing director, Experian Credit Information Co. of India Pvt. Ltd, "Any fraudulent activity doesn't have any impact on the credit score if you have documents proving that you are fighting against the fraud."

Here are the hoops you need to jump through before which you can expect justice. If you are lucky, you may not have to jump through all of them.

Step I: Inform the bank immediately and be firm

If you notice any kind of fraud transaction in your bank account, no matter how small the amount is, call or visit your bank as soon as you get to know about the fraudulent activity. If you are calling up the customer care, take note of the customer executive's name and reference number. If you are submitting a physical letter, keep a copy for yourself. Similarly, keep the records if you send an email.

There are instances, when the bank refuses to take the complaint, but some banks are cooperative.

Says Sanjay Sharma managing director and CEO, IDBI Intech Ltd, a wholly-owned subsidiary of IDBI Bank Ltd, "The moment a customer reports fraudulent activity on his card, the card is hotlisted after the due diligence so that no further fraud takes place." Says Amit Sethi, chief information officer, Yes Bank Ltd, "If any kind of fraud happens the vigilance department is informed. If money transfer is involved, the account is freezed and immediately the process for tracing the money starts. In case money is transferred to another account fraudulently, the bank where the money is transfer is contacted and that account is also freezed. Same is the system if it happens at a point of sale or merchant. The bank contacts them too."

Be adamant with your bank in terms of getting back your money. Says Murali Neelakantan, partner, Khaitan & Co, a law firm, "Individuals who have gone through such a fraud should stand up and say that they are not responsible for it. In fact, it is the bank that is at risk."

Here you need to be vigilant in reading your transaction slip and credit card statements. Based on these documents, you can dispute with your bank.

Step II: Approach banking ombudsman

If you don't get a reply from your bank within the specified period, or the bank rejects the complaint, or if the you are not satisfied with the reply, you can go to the banking ombudsman.

For approaching a banking ombudsman, you need to first check under which jurisdiction you fall. Once you know whom to contact, you can either send an email, fax or letter to the ombudsman.

Usually, the banking ombudsman gives a ruling cases within 30 days. In case of fraudulent transactions and breach of security by the bank, the chances of getting justice are quite high.

Step III: Go to the appellate authority

If you are not satisfied with the ruling of the banking ombudsman and you have been unable to get your money bank, the next thing is to approach the appellate authority, who is RBI's deputy governor; currently, KC Chakrabarty.

For this you will have to send a letter addressing Chakrabarty at RBI's Mumbai office 

Step IV: Move the court

You can go directly to a criminal court. All you need to do is file a first information report or FIR at a police station.

You can also file a complaint with cyber police stations. Says Pawan Duggal, a cyber law expert, "Remember the Umashankar Sivasubramaniam case. Here an adjudicating officer ruled that the bank would have to pay around R12.50 lakh as compensation. In this particular case, the bank appealed to the Cyber Appellate Tribunal."

Sivasubramaniam was a victim of phishing (online identity theft) in September 2007. He alleged the bank didn't take any action and sued the bank under the Information Technology (IT) Act. As of now, the case is under trial.

There have been cases that have been disputed and solved and where a customer has got back his dues from the bank. But there are some that drag on for years together.
Learn more about identity theft at www.cibilconsultants.com

Source-secondary

Side effects of using multiple credit cards !

Credit card companies come up with tempting card offers for investors, albeit now more cautiously after the financial markets turmoil, by offering freebies such as life-time free credit, among other things.

Customers already possessing credit cards often find themselves taking up such offers and ending up with multiple credit cards. The moot question here is, should you be content with having one credit card or does it make sense to have multiple credit cards and if so, how many are enough?

Let’s understand what the benefits and pitfalls of having multiple credit cards could be.

Why would one need more than one credit card?

Credit Limit: If you feel that your credit limit on the single card doesn’t suffice, then you may need more than one card. Nevertheless, remember, if you have a good payment history, credit card companies reward you by enhancing your credit limit, which may eliminate the need to go in for one extra card.

So make sure you make your credit card payments on time- the benefits are manifold. You credit score will not get adversely impacted, you will not have to pay high interest on your card and credit card companies may enhance your credit limit.

Convenience: At times, merchants do not accept all cards, for example, some may accept only Visa or MasterCard. So if you have only one card, you may face inconvenience. Also, sometimes your card may get rejected for technical and other reasons. So a back up is required.

Fraud Protection: If you use your credit card for online transactions, for fraud protection, you may find it useful to use only one card for such purpose and restrict the credit limit on it, so that even if your card details are hacked, the extent of damage is limited.

Benefit-oriented cards: There are some cards which provide maximum privileges or a good deal if used for a particular purpose such as petrol purchases or air miles. You may want to take advantage of the same and therefore have a card for that purpose only.

What are the drawbacks of having multiple cards?

Credit history: Maintaining a clean credit history is becoming increasingly important with credit bureaus, like Cibil tracking your payment. The probability of missing a payment date is higher if you possess several credit cards as you will have to keep track of the payment date of each of the credit cards. If you renege on your payments, your credit history will be get affected, which will adversely impact your credit score and your ability to get loans in the future. Multiple credit cards require you be to very responsible.

Purchasing Power: Credit cards give you the purchasing power as you do not need money in your account to make a purchase. If you are impulsive, then having multiple cards can prove to be a recipe for disaster as you may spend without thinking of your repayment capability. That will result in postponement of payments and over a period of time, accumulate into a large debt.

Effort: Managing multiple credit cards is an effort because it requires a proper schedule, which you need to figure out and keep a tab on. You need to keep track of the payment dates, the interest free period and the credit limit.

There is no clear cut method that determines how many cards are enough. One may not suffice, because you need a back up just in case your credit card is not getting accepted for whatever reason and also for various other reasons as stated above. But at the same time, having too many cards requires you to act responsibly so that you do not tarnish your credit history and find yourself in a financial mess. So, the next time you receive a call for a credit card, ask yourself whether it adds any value for you and whether you will be able to manage it responsibly!

For ascertaining credit score and maintaining credit report visit www.cibilconsultants.com and book an appointment now for expert advise.

Source: Secondary