This article is a must-read for those people who have more than one credit card. They surround a cloud of questions with them. Some people have no clue about the billing cycle while some struggle with choosing the best credit card. Most of the people choose a specific credit card because their relatives use it. However, that’s not the best way to choose one. Everybody has different needs and that’s why the credit card should be chosen with extreme care.
The other issue is that one credit card cannot cater all your needs. Once a person starts using a credit card, then s/he explores more habits. While, in reality, credit cards can be the road to financial clutter. More than one credit card can diversify an individual’s portfolio. It has direct impact on credit score.
A great benefit of using multiple credit cards is that you can use each for different purpose. For example, you can use a credit card for getting cashback on a particular flight ticket and use the other card to get free access to airport lounges. Together, you will be spending less on each card than using only one card. This division of expenditure will also benefit your credit score. But it all comes down if you have the financial discipline to maintain two cards.
But what is the effect?
A well balanced credit card portfolio and its maintenance can be a great asset. Upon applying for a new credit card, the lender decides your creditworthiness by looking at your credit score. But all of this is only great when you are able to maintain these many credit cards.
The main here is to increase the total available credit card and all those unused credit cards can also help. If a card remains inactive then it affects your credit card in a negative way.
The credit score is based on an individual’s credit utilization ratio. That is known as the percentage of available credit a person uses every month. If the credit stays unused, then credit card may be shut. This time period differs from company to company.
Credit card issuer is not required to keep the user updated about the status of his/her card. An inactive amount is enough for the issuer to close the account without notifying prior. The available credit in your name is directly proportional to your credit score; lesser the available credit lesser the credit score.
Another aspect that affects the credit score is the length of an individual’s credit history. For instance, if an individual has held a card for a long period of time, but it has been inactive for most of the duration, then in case the issuer closes the credit card, it will affect your credit history.
Since this was your oldest credit card, closing it will void you off all the benefits of your credit history and credit score will fall. Hence, try not to close your oldest credit card because if that happens then your credit score will experience severe damage.