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How many credit cards should you have?

Monday, February 24, 2014 by Abhishek Agarwal

cc130n30The rule of thumb is that you should have a maximum of two active cards based on the credit limit, interest rates, freebies offered on the credit card and credit card maintenance fees. Not only you should carry the right number of credit cards, but you should also ensure that you pay all your card dues on time. This is one of the biggest kept secret to having a good Cibil score.

When banks and other lenders evaluate your loan application they look at Cibil Score and credit utilization among various other factors to determine your loan eligibility. If you have only one credit card that also happens to be maxed out is incredibly damaging to your Cibil score. Having only one credit card that also has a very low balance relative to the credit limit is very helpful to your Cibil score. It may be a good option to have multiple credit cards that are all paid on time with zero balances to build your Cibil score. Read more on how utilization impacts your credit score.

When you have a very high balance on your credit card lenders see it as a high-risk candidate for borrowing. The general feeling among the lenders is that if a person is coming on board with high balances, the chances of missing payments are higher. So to be on safer side, keep your balance around 10-30% of your credit limit. This gives room for you to borrow more.

Don't close good old credit cards: The next obvious question we get is, "I have more than 2 active cards. Should I go ahead and close my other cards"? The answer is "NO" - as counterintuitive as it sounds. Credit cards that were opened a while ago give you credibility. Credit cards that were opened say 5 or 6 years ago demonstrate to lenders that you have had experience of managing credit for a long time and this boost your credit score. Also, old open cards add to your credit limit.

To sum it up: Use a maximum of two active credit cards. Pay all your balances in full before the due date. If you have more than two cards, don't panic - you can close the cards that were opened recently, but keep open cards that had very high credit limits or that were opened a long time ago. 

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