Pros and Cons of Having Multiple Credit Cards

Rohan had a rewarding cashback credit card which offered attractive savings on grocery and lifestyle spends. However, he was a frequent traveller and his credit card did not offer many travel perks.

But, Ritesh, Rohan’s friend, had a travel credit card which offered cashbacks on flight and hotel bookings. Sadly, there were few benefits on lifestyle or monthly grocery bills.

Their mutual friend, Satish, advised them to apply for other cashback credit cards that offered category-based rewards. Rohan applied for a travel and fuel credit card to enjoy cashback on travel and fuel transactions, while Ritesh applied for a lifestyle, shopping, and fuel credit card for all-around savings.

Do you think Rohan, Ritesh, and Satish owning multiple credit cards was a smart choice or overkill?

Let’s explore the meaning of cashback credit cards and the pros and cons of owning multiple ones.

How do cashback credit cards work?
 

Cashback credit cards offer cash returns on specific transactions. For instance, if you choose a fuel credit card, you get cashback on every fuel transaction. If there’s a 5% cashback and you spend ₹1000, you earn a cashback of ₹50.

This cashback is credited to your credit card bill , allowing you to save on your overall transactions.

Multiple cashback credit cards - Why they are beneficial
 

There are different types of credit cards, like:

1. Travel cards
2. Fuel cards
3. Shopping cards
4. Lifestyle cards, etc.

Each of these cards offers cashback and other privileges on its relevant transactions. For instance, travel credit cards offer benefits in the travel industry, while fuel credit cards reward you on fuel transactions.

Owning multiple credit cards can, thus, offer the following benefits:

1. Higher savings

With multiple cashback credit cards offering cash rewards on specific categories, you can amplify the aggregate savings and rewards on most of your transactions. This converts to better savings too.

2. Improvement in credit score

Each card has its own credit limit. Having multiple cards increases your total available credit. If you use only a small portion of that, your credit utilisation stays low — this can help boost your credit score.

For instance, say the credit limit on one card is ₹1 lakh, and you use ₹20,000 on average every month. Your credit utilisation ratio will be 20% (₹20,000/₹1 lakh X 100).

Now, if you get another credit card with a credit limit of ₹1 lakh and your usage increases marginally to ₹30,000, your credit utilisation ratio would reduce to 15%. (₹30,000 / ₹2 lakh X 100)

As the ratio drops, your credit score will increase because lenders view lower credit utilisation as a sign of responsible credit behaviour. It shows that you’re not overly reliant on credit, which makes you a lower-risk borrower in their eyes.

Now, let’s understand the downside of owning multiple credit cards.

The risks of owning multiple cashback credit cards

While multiple cards can help you maximise the cashbacks, there are a few drawbacks you must know about. Some of these drawbacks are as follows -

1. Difficulty in managing multiple cards

Remembering different due dates of multiple cards can prove difficult. If you miss paying a bill, you will incur high interest charges, and your credit score will also be negatively affected.

2. Risk of overspending

The higher credit limit works as a double-edged sword. While it increases your purchasing power, it can also tempt you to overspend. Spending beyond affordability can land you in a debt trap.

3. Effect on credit score

Whenever you apply for a new credit card, a hard enquiry is made on your credit score. Applying for multiple credit cards within a short interval can negatively impact your credit score.

4. Added expense

Credit cards might come with a joining and annual fee. With multiple cards, the aggregate spending on fees would increase, potentially harming your monthly budget.

Is managing multiple credit cards right for you?
 

Use this quick 3-step checklist to decide:

1. Understand your spending habits

1. Are you disciplined with spending?
   
   
2. Do you regularly pay your credit card bills in full and on time?

If yes, you may be ready to handle the added responsibility of a second card.

2. Check your credit score

1. Is your credit score healthy (typically 730 or above)?
   
   
2. Have you avoided late payments or maxing out your limits?

A good score indicates that you’re managing your credit well and may qualify for better credit card offers.

3. Be clear about your purpose

1. Are you getting another card for better rewards, a higher credit limit, or specific benefits (e.g., travel, fuel, shopping)?
   
   
2. Do you have a plan to track and manage multiple due dates?

If you have a clear reason and plan, adding a new card can work to your advantage.

What should you do when you own multiple cards?
 

Owning more than one cashback credit card has its share of pros and cons. So, what should be an ideal choice for you?

Owning multiple credit cards is a good solution. However, to mitigate the risks, you can use the following strategies:

1. Set up spending limits on your credit cards
2. Track your transactions regularly
3. Choose cards that offer the maximum cashback, like IDFC FIRST Bank Credit Cards
4. Set up an auto-debit mandate on your bank account to pay credit card bills automatically without fail
5. Do not apply for multiple cards at the same time. Space out your applications to minimise the damage to your credit score
6. Choose cards that have zero or minimal joining and annual fees so that you can save on the added expense

IDFC FIRST Bank Credit Cards - Your gateway to rewarding transactions
 

If you're looking for a rewarding cashback credit card, consider the FIRST EA₹N Credit Card. Backed by a minimum fixed deposit of Rs 5,000, the FIRST EA₹N Credit Card is available to everyone, regardless of their credit history.

Here’s what makes the FIRST EA₹N Credit Card an excellent cashback credit card:

• Virtual RuPay credit card for easy online payments, including UPI
• Up to 1% cashback on all UPI spends
• 100% cashback up to ₹500 on the first UPI transaction
• 5% cashback up to ₹1,000 on the transaction value of the first EMI
• 100% cashback up to ₹200 on the first four UPI transactions via the IDFC FIRST Bank Mobile Banking App every year
• 25% off up to ₹100 on movie tickets every month with District
• Manage your credit card easily through the digital-first IDFC FIRST Bank Mobile Banking App

Spend smartly with the right credit cards in your wallet
 

Who doesn’t like saving?

Choosing the right cashback credit card means more money in your pockets. So, assess your spending habits and pick suitable cards to enjoy maximum benefits. However, ensure effective credit card management to avoid the disadvantages.

Level up with the FIRST EA₹N Credit Card and maximise the cashbacks on your transactions today.