While vacationing in Europe with your family, you take the time to enjoy pasta at an outdoor restaurant in Venice. At the end of your amazing meal, you hand the waiter your credit card. After a few moments, he returns and tells you that the card has been declined. The next few minutes are full of panic as you hunt for loose cash so that you at least have enough money to take you back to your hotel.
Emergencies like this can be easily avoided by carrying a second credit card. Credit cards are still an emerging trend in India and they are slowly getting greater acceptance among a larger segment of the population. However, they still have quite a bit of catching up to do. Compared to the 350 million debit cards that are currently in circulation, the total number of active credit cards in India is only 19 million. However, the acceptance of credit cards and their usage is definitely on the rise as is the trend of keeping more than one credit card. Some of the key reasons of why more and more individuals are opting for multiple cards are as follows:
- As a backup option– Your primary credit card can be declined because of a variety of reasons. Many shops not accept cards from particular payment processors (e.g. American Express and Discover/Diner’s Club cards are not accepted by many merchants)due to technical issues. In such cases, a second credit card can be a handy alternative for someone not used to carrying around much cash on their person.
- For benefits – Different credit cards come with varying benefits. For example, HDFC’s Platinum Edge card earns 50% reward points when you dine out, while the MoneyBack Card offers 3X reward points on online expenditure. On the other hand, many of CitiBank’s and Standard Charterers credit cards offer you amazing discounts on dining, while the American Express Make My Trip credit card ideal is an ideal partner for those bitten by the travel bug. So, if your needs are sufficiently specialized, it might be worth having a second credit card to cover that part of your expenditure and earn the unique rewards you get for just using the card.
- To improve your credit score – If you maintain a stable rate of spending even after getting a second card, your total expenditure is now being distributed between the two. So your credit to debt ratio would improve as your overall credit limit increases. This will bolster your credit score and help you negotiate better (lower) rate of interest on future loans and improve your chances of being approved for future credit instruments such as loans/credit cards.
- For financing sudden large expenses – In case of serious emergencies, getting hold of a large amount of cash can pose a problem. Suppose you have to catch an urgent flight, or a dear one needs immediate medical attention. The credit limit on your primary card may not be sufficient to make all the payments you need.As the credit limit of a card is a function of your income and usage, it is non-customization. In such situations, having a second credit card is perhaps the only way out you might be able to split your expenses across the two cards without maxing either.
The cardinal rule remains the same: avoid making minimum payment on either credit card if you can pay the full due amount. Every time you defer payment to the next billing cycle, the interest charged on revolving balances increases. In addition, your credit score will also take a hit, which can be a bit of a problem in case you plan to apply for additional credit cards and loans in the future.
If you have decided to go for a second credit card, the following is a handy list of Dos and Don’ts…
|Don’t go for multiple cards from the same bank as they may have drawbacks similar to your primary card||Do have credit cards with varying benefits, like reward points, zero fuel surcharge, cash back offers, flight upgrade privileges, etc.|
|Don’t apply for a second card if you are already lagging behind on payments for the first one||Do keep track of the different payment cycles and keep a gap between different payment dates|
|Don’t have more than 3-4 active credit cards as they may bring down your credit score in case your outstanding balance is high.||Do apply for a premium card only if you plan to use it frequently and only then will the accrued rewards compensate for the cost of maintaining this credit card.|
|Don’t have multiple credit cards if you tend to spend impulsively||Do carry all cards on your person and match the card to the type of purchase e.g. use a fuel card only for fuel purchases, a travel card for flight and hotel bookings and more.|