Don’t Be So Generous, Add-On Credit Cards Have Drawbacks
At first, it seems best, then it feels good, but later you feel like not having it any more. No, I’m not talking about law of diminishing marginal utility that you carefully studied for some exams. But I’m talking about credit cards and how add-on credit cards can completely destroy your credit ranking.
Well, tell me if you have bread and have to share it amongst 2, how much would you get? ½. Well agreed. But what if I say you have to share it with 4 people? Your share would ultimately get reduced to ¼. Thus, now come to your CIBIL scores. Let’s discuss this in detail:
- Decreases Age of Credit History: I know you are so curious about obtaining that 8-year credit age history, for which you have been waiting for some period now. However, if you start to add up those new credit cards, it would then average your credit history of previous cards. For example, if you have a card that you have been using for 4 years now, then getting a new card would make your credit age as just 2 years.
- Usage: You are likely to use both the credit cards when you get them, otherwise why get them? However, now you have to worry about two card budgets. While two users using both the cards would certainly help you earn rewards faster than using a single credit card, it can be easy to lose sight of your budget if the other use is not disciplined. A high bill due to an authorize user can lead to a missed payment and strained relations. Additionally the add-on user is not helping build his or her own CIBIL Score. Bottom line, don’t get an add-on credit card only because of the allure of awards.
- Make You Look Like ‘Risky Borrower’: Opening many credit cards at once would suddenly make you look like a risky borrower who suddenly wants excess to loads of credit, and thus it would definitely have a negative look on your profile.
- Drop in Credit Utilization: Well, if you do not make enough payments using credit cards your credit utilization rate will fall. It may seem like a relatively smaller amount of payments to be made for one card, but if you have many cards, then making sufficient payments for maintaining the credit utilization rate is necessary.
No doubt, having more credit cards would give you a better credit history by projecting you as a good player, but it could do damage to your score too. However, opening up new credit cards must be used as a method of last resort rather than using it as a measure of improving credit score. Efforts must be done to improve the CIBIL score rather than borrowing a new one, a wise analysis on the topic is necessary before deciding as whether to get new cards or improving CIBIL score. The latter is suggested and recommended by many.
One must also notice that credit cards are not free money, we have to pay it all back. It can become a double edged sword if suitable steps are not taken before things take a turn for the worse. Ultimately, complicating things with an add-on credit cards is not worth it in most cases. It just opens the door for things to go wrong, which you don’t need.