Invest in Credit Risk Mutual Fund or not?

Credit card usage in India has scaled up very rapidly, especially since the pandemic. Since credit cards offer an instant and interest free short-term borrowings; it is quite common these days for users to have multiple credit cards for their convenience. However, such users need to be extra careful and responsible about the usage behaviour of such financial tools.

It’s worth mentioning that when you use credit cards for making any purchases, you are essentially using a credit-based transaction facility. In other words, you are liable to pay back the amount to your financial institution in a stipulated time. Failing to do so invites penalty in terms of interest charges. But what is more damaging is such repayment failure negatively impacts your credit score. When multiple cards are in use, the risk rises but can be managed easily with a little more attention and discipline.

Here are the 5 points you should consider if you own multiple credit cards.

1. Remember your billing cycles

No two cards need to have the same billing cycle, and chances are that each one of your credit cards may have a different one. You should know, remember, and clear your bills by the due dates of every card in order to avoid penalty. Keep an eye on your SMSs as all credit card companies send you alerts as your due date approaches. Alternatively, you can also make use of one of the several mobile applications that help you keep track of or even automate your credit card bill payment.

You can make use of this difference in billing cycles to help you spread your purchases across cycles. This lets you have more time to pay your dues. For instance, if you have two credit cards with billing cycles from 1st to 31st of a month and from 15th of the same month to 14th of next month. Ideally, you should use the first card for the first 15 days and the other one for the rest of the month. Such a usage strategy does not burden you when it comes to payment of dues.

2. Don’t burden one card; use them all

Often, we tend to have a preferred card and use it for most transactions, resulting in minimal use of other cards. Since most credit cards have a minimum usage limit in a year to qualify for waiver on annual fees, burdening only one card will not let you reach the minimum annual transaction limits on other cards. Moreover, spreading your spends across cards would mean better credit utilization as well waiver on annual fees, both excellent benefits in the long run.

3. Use cards rationally

Make optimum use of all the cards you have depending on the unique benefits each card has. For instance, if a particular card allows you discounts at certain retail houses, better use it there rather than using other cards. Similarly, marketplaces, merchants, and issuers keep coming up with offers on credit cards. Depending on the offer, you should decide which card to use to make the most of it. Such a rational use helps you reap additional benefits of credit cards, such as availing special offers, discounts, and reward points.

4. Don’t keep all credit cards together

It’s a common practice to keep all cards together either in your wallet or bag. From safety point of view, one should not keep all cards at one place. In case of theft, you end up losing all your cards in one go. Blocking and reissuing of new cards do take time, which can affect your liquidity and your ability to make transactions. Moreover, getting used to a new card number, new settings, and replacing the old card details with the new ones in several places can be a tedious task. As much as possible, carry only the required cards whenever you go out for purchases, preferable according to the billing cycle.

5. Avoid common passwords for all cards

Many users tend to have the same pin and transaction code for all their credit card and debit cards as it is convenient to remember. Don’t do that. For safety reasons, it is best to have different passwords. Though at times it’s a hassle to readily recollect your PIN, it’s a trouble worth taking to avoid any possible financial frauds which could be more painful.

Credit cards offer ease and convenience of transactions. You can amplify this by being rational and attentive with card usages. Users of multiple cards do need to be a bit more careful to get maximum benefits. But following simple but useful steps can help you secure those benefits easily and ultimately help you create a strong credit profile for the long term.

(The author is CEO, BankBazaar.com; views expressed are personal)