High number of cards with high credit limits - Opinion and Thread

[Cierdo]

Hi Guys
In the past few months, I have seen an obsession amongst people towards having a high number of credit cards with a high credit limit.
I believe it's time to really educate people about the drawbacks of the same and address the elephant in the room.

Here are my 2 cents as to what I think happens when you blindly just demand banks for more cards and higher limits without actually providing income proofs and data to back up that you can pay the banks the money that you collectively owe.

When you apply for a card, your profile goes through an underwriting stage. Your existing card limits and the new issuance limits are collectively benchmarked to underwrite you a credit card, which means the total liability you can have against an unsecure loan.
Seeing this from a completely objective perspective, banks should not keep total credit card limits more than 60-70% of a person's yearly income. However, this does not happen due to the fact that banks need business, and that's what enables them to actually give more than a customer deserves.

You may be able to get a LE or card upgrade by threatening the bank to leave or via any reason, but in that process, you are increasing your underwriting amount.

Take for example, you're having an yearly income of 10L for suppose, and your total credit limit is 20L, that is a big red flag for any lender and it stays in the system.

Your CIBIL may indicate that you are risk averse or risk free, however banks bucket the profiles based on multiple factors and not just Cibil score.
A high leverage to earning ratio will make you as risky a customer, as someone with a CIBIL of 700 or so.

The only objective of this thread is to be cautious, dont just apply for a card for the heck of it, and be careful while asking for limit enhancements.

Just because someone got 2L or 5L limit, doesn't mean you are entitled to the same, because of the above mentioned criteria.

These things however, change when you sre using a card for business purposes. A lot of people here with high spends and multiple cards are using their cards for business purposes, in which case the dynamics change. That is a discussion for some other time.

All said and done, dont hype this up and rather lets focus on helping each other build good credit history with good credit practices, along with finding ways to redeem great offers!

 

[V360V360 is verified member.]

Amazing post @Cierdo.

To all Community members, please run this race for yourself and not for others.

End of the day, credit card is a liability and can only be considered as lifestyle asset when you have proper backup to manage that lifestyle.

Rightly called out by our friend - it is an elephant in the room

 

[ChurningNoob]

Does this count for the loans too which are linked? Because even those are credits issued by banks which is almost 5x of salary

 

[Cierdo]

Practically, what are the consequences?

What about people with 0 income and CCs?

It will cause trouble if in case you genuinely need a loan for some purposes. Be it car loan, personal loan, you are too leveraged for banks to give you more loans.
As long as your limits are within safe limits, you should be fine, no matter the number of cards. (But more number of cards means more limit, so it's a never ending cycle).
Also people with 0 income and multiple CCs, they are also necessary for banks. Banks need people who revolve credit to make money from the exorbitant interest rates that they charge.
But again, multiple cards are fine, just dont get too deep into unsecured credit, that's all

 

[Cierdo]

By the way, according to your logic, ideally people should be assigned a combined CC limit for all their CCs.

Exactly, that's an ideal world. Think of it this way, if you're making 10LPA, what would you do with credit cards having a total limit of 20 or even 30L?
It is safe to assume that no person making 10LPA, in their right mind would need to spend 10L in a month.
Even if they did spend somehow, the chances of paying it back successfully within the stipulated time, are less.

 

[Cierdo]

If CC is a liability, why should people use them?

Nowadays even debit cards have similar offers like CCs ... Don't they?

CC is a liability because you're spending the money that is not yours. People use it for rewards and the credit period it offers.
This post is not intended to demean credit cards, they are great tools and I advocate using them.

 

[Cierdo]

Does this count for the loans too which are linked? Because even those are credits issued by banks which is almost 5x of salary

5x of monthly salary is fine, no bank would provide you a loan which is 5x of your yearly salary/income unless and until that loan is backed by a security (car/home).
And yes, in case you're having a loan worth 5x of your monthly salary already active on your Cibil, the chances that you'd be able to repay another similar loan simultaneously are very slim, so banks may not be willing to extend you credit.

 

[AsB]

Credit Cards, when used wisely are your biggest assets. There is a reason that banks charge 2-3 % from businesses, on Credit Card transactions, but not on Debit Cards or UPIs . While having a lot of cards is a cause of concern, having a good amount of Credit Limit need not be. It all boils down to a very critical factor- the Credit Utilization Ratio. If it is much more compared to one's earning, then definitely that is a big Red Flag.
These days, many people run after Credit Cards due to multiple offers being run by banks. Those who spend recklessly, like taking home loans , car loans, etc. early in career, and later fall prey to those spends. That they do due to their bad spending habits or unawareness of loans/true liabilities.