How many credit cards is too many? By Ryan Ong
Watch how many credit cards you own. Photo: Mikalai Maminau / www.123rf.com
When it comes to credit cards in Singapore, you can get too much of a good thing. All those discounts and deals are great, but you’re inviting trouble beyond a certain point if you own more than you can handle. Here’s how to tell if you own the right number of credit cards.
Use Credit Cards as a Mode of Payment, Not Mode of Credit
The interest rate on a credit card is a whopping 24 per cent per annum. This makes it terrible for loans. On the other hand, a credit card gives you discounts, air miles, and rewards when you charge purchases to them. This means that, at all times, the credit card must be a mode of payment only: you should always pay it back in full, before any interest is incurred. That will be the key principle of everything we explain here.
Two is Best, Four at Max
As a general guideline, two credit cards are enough for most Singaporeans. In most cases, the first credit card is a cashback card for general expenses like groceries and utilities. Cashback is the rebate you receive for using the card. This is typically six to eight per cent of what you charge to it. Note that there is often a limit to how much cashback you can earn, but some cards like the lets you earn unlimited cashback.
The reason we use this as the main card? It’s simple: a cashback rebate is versatile. It’s like getting a permanent discount on your most essential purchases. We’ve listed down all the ways you can maximise your cashback card, as well as the best credit cards for groceries in Singapore.
Your second credit card should be for the biggest portion of retail spend. If you spend most of your disposable income on restaurants, for example, there should be a dining credit card in your wallet. If you spend more on travel, then the second credit card could be for air miles. In general, one card will be a Visa card while the other will be a MasterCard. If one is not accepted, the other will be. Comfort taxis, for example, accept MasterCard but not Visa.
When Should You Get Three or Four Credit Cards?
It’s seldom necessary, but if you are good at tracking your finances, you can use three or four credit cards to optimise your purchases even further. For example, some motorists have a third credit card that is specifically for petrol. Some of these cards can give you cashback in addition to existing discounts. Compare credit cards to find out which ones can save you money on your major everyday expenses.
Some people use four credit cards because they have more than one primary expense. For example, they may spend on entertainment (movies, pubs, etc.) as often as they spend on dining. This might lead them to have a separate card for each purpose.
Sometimes, frequent travellers to have a specific card enabled for overseas use. We don’t recommend this. Most cards, be they Visa or MasterCard, will charge one per cent for currency exchange rates when you buy abroad. As such, we suggest using cash instead of credit cards when you are overseas. Some travellers will deliberately cap the credit ceiling (the amount that can be borrowed) on one of their cards, and reserve it for overseas use. This limits the damage in the event of theft.
Photo: stevepb / www.pixabay.com
Why Not Just Have as Many Credit Cards as Possible?
Each credit card has its own billing cycle, which is activated from the moment the card is used. You generally have 27 to 31 days to pay the card in full, before the interest rate is applied. If you have two credit cards, you only have two billing cycles to remember. If you have a dozen credit cards, you are liable to get confused and miss a cycle. This leads to penalties such as late fees.
If you spread out your loans across 10 or more credit cards (again, we suggest you use credit cards only to pay for things, not for actual loans), it becomes easy to underestimate how much you owe. For example, owing S$300 on 10 different credit cards makes you feel like you owe less, as opposed to one card with a S$3,000 debt.
Alternatively, people with a large number of credit cards may end up using just one or two of them. The other credit cards are wasted. Note that these extra cards are not “free” – they often have an annual fee of between S$100 to S$300. So do not keep credit cards if you are not using them.
The final problem with having too many credit cards is that your credit score goes down. Your credit score is used to determine your risk level when you take out a loan, and you can obtain a report of it from the Credit Bureau of Singapore (CBS) for S$6. Keeping your credit score healthy is important for major loans, such as a home loan or education loan.
A version of this article originally appeared on www.singsaver.com.sg, a personal finance comparison site with useful tips and guides to empower everyone in Singapore to make sound financial decisions.