4 tips to manage multiple credit cards

There's a glut of plastic out there - not just carry bags but credit cards as well. At last count, there were around 14 million credit cards in circulation in India. According to a study conducted by Visa International and National Council of Applied Economic Research early this year - there were only 3 million cards in use in 1998, but it has grown 55% annually to touch 44 million over the last seven years.

The main players in the Indian credit card industry are Citibank, Stanchart, HSBC and ICICI and they all have cards to suit all purposes. The best of both worlds being co-branded cards, like ICICI Bank with Big Bazaar or ICICI Bank with HPCL etc.

Too much of a good thing?

So now, you've got choice - maybe too much of it! There are petro cards, Citibank-MTV card, global credit cards, add-on cards, frequent flyers card - the list is endless. Most people own more than one credit card because the offers tagged onto them are simply hard to resist. But should you own multiple credit cards? And how do you squeeze out maximum benefits each time you use that piece of plastic?

Says Head of Credit Cards, HSBC, Puneet Chaddha, "One should definitely have more than one credit card. Of course, I don't mean five or 10 but then three is a good number.  First, it's because you can benchmark your services. Second, you get more usage offers. With a higher credit limit and all cards put together, your risk exposure is lower. With one card, the chances of it getting damaged or lost is high. Whereas, if you have more than one card, you could use one for your personal use, one could be for your wife's shopping and the third with a lower limit can be used for transaction purposes on the internet."

Says Head of Credit Cards at ICICI Bank, Madhivanan, "In my opinion, owning multiple credit cards is not risky. This is because the consumer usually has one preferred card out of the several cards in his wallet. Out of the others, one could be for his personal expenses, one for official, the other one for entertainment etc. Each card has a limit of Rs 1 lakh, which means if the consumer has 3 cards the credit limit he has is Rs 3 lakhs. But then, the overall utilisation is 10% to 15% of the total limit available. And the customer uses his card only in case of emergencies."

Chaddha explains, "To make the best use of multiple cards, you could time your purchase at the start of the credit cycle in such a manner, that you get a credit of around 46 days. But then, not many people do that actually. A credit card is a convenience product and is it practical to actually time your purchase each time?"

Tips to use multiple credit cards smartly

Certified Financial Planner, Veena Malgonkar says, "Credit cards are definitely an expensive form of credit and it's also risky to own several of them. But then, here are a few tips to make the maximum use of multiple credit cards." She lists out a few of them:

1. Check out your billing cycle

 If you own multiple credit cards, find out the billing cycle of each card. If the billing cycle is from 15th to the 14th of next month, you can easily make a purchase on the first card. And move on to the other, for the second purchase. It's the cut-off date on your bill that's important, on the basis of which you could time your purchases.

2. Interest rate

Find out what are the interest rates that are being offered. It could be 2.5% on one and on the other it could be 2.75%. You could negotiate with the credit card company for better interest rates. If you have been their loyal customer for a long time you could easily get attractive interest rates.

3. Waiver of annual fees

Recently, ICICI Bank has waived off the annual fees on its credit card while the other companies have not followed suit. You could negotiate and get the annual fees waived off, if you have been using some other credit card. If your payment record has been good and you are the persistent type, card companies do oblige and waive off the annual fees.

4. Consumer durables

You could also strike good bargains when purchasing consumer durable items. The interest rates are waived off and you are allowed to pay up the amount in question through easy installments. Everything finally depends on getting in touch with the right person. These days, there's a lot of customization taking place and if you have had a good credit history, you can demand a lot more benefits.

Drawbacks of having too many cards

Says Certified Financial Planner, B Srinivasan, "It's not advisable to own multiple credit cards. Yet if you do and plan to make the most of it, ascertain the billing cycle of your cards first. Now let's say the credit cycle on one of your cards ends on the 25th. And on the second card, it ends on the 13th. For maximum benefit, I would make a purchase on the 24th on the second card which will enable me to get credit for a longer duration." Besides that, you can also request your bank to waive off the joining fees.

But the RBI is considering imposing a credit limit on customers using multiple credit cards. Says Madhivanan, "While the draft guidelines in this regard do say, that such a limit is needed, it is more of a norm for banks. What it actually says is, that the bank should not increase the credit limit of the individual without ascertaining his financial capacity. But if banks do that, it would definitely boomerang on them. We have not yet imposed any credit limit."

Chaddha adds, "Its simply not feasible. In that case, banks would have to exchange credit information about its customers. At this point, I don't think its possible."

Not all consider owning multiple credit cards a good idea. Chartered Accountant, Yogesh Thar agrees, "Internationally, the trend is to own several cards. And perhaps it may happen here too. But for a customer, verifying so many card statements every month is a difficult proposition. Besides, the tendency to spend one's future income is high. It could pull one into a debt trap, if not used wisely."

He adds, "For those who move around in their private vehicles, a fuel card makes sense. The extra benefits, extra points with the surcharge waived off definitely adds more value. The second card could be for shopping and purchases. For instance, when card companies have tie-ups with malls. These are targeted at the homemaker and there are reward points, cash- back features etc. One should remember that the interest rates on credit cards are very high - its around 36% a year. So one needs to be careful not to default when it comes to paying your bill."

Certified Financial Planner, Murli Krishnamurthy says, "There are so many cards available these days. But I personally feel an individual should not have more than one credit card. It increases the risk. For instance, for an individual who is always on the move, a petro card would make more sense. Similarly, for a frequent traveller, perhaps the frequent flyers card would be appropriate."

The RBI is also against issuing credit cards to students and those with no independent source of income. Says Chaddha, "We do not have any product targeted at students. It's definitely a risk that companies are taking, but then one needs to assess the repayment capacity of the individual before issuing such cards."

All said, multiple credit cards will soon become the norm. And with co-branding taking off in a big way, it will make more sense to ascertain your usage first and go for cards that bring in more value for your money. At the same time, do keep a tab on your spending.
 
by Geeta Nair