Many people have several credit cards that can increase their overall available credit, but it’s also important to use all of them responsibly. But does having multiple credit cards affect CIBIL score? Well, it certainly does.
Having several credit cards will impact a person’s credit score greatly and in many ways. That’s why managing all your credit cards properly is highly crucial, and you can do so by keeping the balances low and making the payments on time.
That way, your credit score will benefit greatly when the credit utilisation ratio is low. In addition, missing out on all the payments on any of your credit cards will negatively impact your credit score.
To know how closing credit cards affect CIBIL score and how you can maintain a healthy credit score, check out the information given below.
Why is it essential to keep a healthy credit score?
There are countless reasons to maintain an excellent credit score. Here are some of them:
1. Gain access to credit
Having an excellent credit score means getting your mortgages, credit cards, and loans approved easily. All the lenders will utilise your credit score to assess your creditworthiness. So, with a much higher credit score, accessing credit whenever you want will become easier.
2. Low interest rates
A solid credit score grants you access to lower interest rates for both the credit card and loans, leading to significant savings. Also, the 811 Credit Card from Kotak 811 distinguishes itself with competitive interest rates, transparent credit limits, and a host of benefits such as fuel surcharge waivers, cashback rewards, and flexible EMI options. It's designed to effortlessly cater to your financial requirements while enhancing your financial flexibility.
Must Read: What are Credit Card Interest Rates and How It Works?
3. Employment opportunities
Many employers check the credit scores of candidates during the recruiting process. This is especially true when a person is applying for a position that involves monetary responsibilities. Having an excellent credit score will magnify your possibility of employment in the field of finance.
4. Insurance premiums
Many insurance firms utilise credit scores to decide the premiums. When you have a much higher credit score, the insurance cost will be much lower.
How can multiple credit cards affect the credit score?
When you have over 2 credit cards, there is a high chance it will affect your credit score greatly. Here are some of the ways:
1. Credit utilisation ratio
One of the primary factors in the credit score is the credit utilisation ratio. This is the amount of credit you’re utilising compared to your overall available credit.
When you have numerous credit cards with less balance, the total credit utilisation will be much lower. This is certainly good for your credit score.
However, having a high balance on all your credit cards will lead to an increase in the credit utilisation ratio and also lower the credit score.
2. New credit inquiries
Even though closing credit cards affect CIBIL score, having numerous hard inquiries can also impact your credit score. In other words, when you apply for a credit score, an insurer will conduct a hard inquiry on the credit score.
If there are too many of these inquiries in a short time, it will show all the lenders you’re taking in plenty of new debts. In return, your credit score will become lower.
3. The payment history
Every credit card account contributes greatly towards the payment history. When you make all the payments on time across all your credit cards, it will give a boost to your score. However, missing out on these payments will negatively impact the credit score.
4. Mix of credit types
Many lenders check the mix of various kinds of credit like mortgages, loans, and credit cards. When you have multiple credit cards, it will certainly contribute positively to this particular mix, especially when you’re properly managing them with the other credits.
Must Read: Types of Credit Cards in India
5. The credit age
The age of your credit card accounts plays a role in your credit score. Having multiple cards can reduce the average age of your accounts, potentially lowering your credit score slightly. However, with the Dream Different Credit Card from Kotak811, you can build credit while pursuing your investment dreams differently.
No credit score or income proof is needed; simply open a Fixed Deposit for as low as Rs. 5,000 to unlock this secured credit card. Enjoy benefits like a lifetime free card, generous credit limits, and rewards on spending.
How is the credit score of the credit cards determined?
A credit card holder’s credit score is determined through countless aspects, and each of them carries a different weight in the calculation. The most vital factor is the payment history, which accounts for 30% to 35% of the credit score. This includes the following things:
- Whether or not all payments are made promptly
- Late or missing out on the payments
- The severity of the delinquencies
Another factor is credit utilisation, which is also said to make up 20% to 30% of the overall credit score. The length of the credit history makes up around 15% of the credit score, considering the moderate age of your credit card accounts and how long you have utilised the accounts.
The credit mix and new credit make up the last 20%. The new credits are known as the inquiries that were made recently and how many credit card accounts were opened.
The credit card mix is the type of accounts you own, such as instalment loans, mortgages, etc. Maintaining a proper mix, keeping the credit utilisation lower, and making payments on time will lead to a better credit score.
Conclusion
To sum up, having multiple credit cards can have both negative and positive effects on your overall credit score. When you properly manage all your credit cards by keeping a low balance, making payments on time, and staying cautious with the latest credit applications, you will have a much higher credit score.
It’s primarily because you will see an increase in the overall available balance on all your credit cards, which will reduce the credit utilisation ratio significantly. But when you have many credit cards with frequent inquiries or high balances, it will have a negative impact on the score.
So, it’s vital to strike a balance and properly utilise all your credit cards to maintain your credit score. It will also enable you to enjoy all the advantages your credit cards have in store.
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This Article is for information purposes only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. Bank makes no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Newsletter. The information contained in this Article is sourced from empanelled external experts for the benefit of the customers and it does not constitute legal advice from Kotak. Kotak, its directors, employees, and contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein.
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