Word of caution: Add-on credit cards can hamper your CIBIL score, Know how you can avoid it!

Jairam Shetty, a General Manager with a leading FMCG company has been planning his retirement for a while. Having saved a sizeable amount for his post retirement plans, Jairam along with his wife Asha, were looking at investing in a holiday home in Palakkad in Kerala.

A highly disciplined man, Jairam ensured that his finances were in order and his bills duly paid on time. He only used his corporate credit card for official expenses and almost nver used his personal credit card. He did however give his daughter, a B-school student residing at a hostel in Pune, an add-on card for having access to finance in case of emergency.

Being the disciplined man that he was, Jairam made it a point to regularly pay all his utility bills, loan EMIs and corporate credit card bills month on month before the due date. However as his daughter did not use the add on credit card during the first few months of her stay at the hostel, Jairam assumed that his daughter may not use this card and did not bother to keep a tab on its bills.

As time flew, Jairam forgot about the add-on card given to his daughter and was all set to purchase his new holiday home in Palakkad. As a practice, Jairam accessed his CIBIL Report and CIBIL TransUnion Score to check his financial health and credit history before applying for a loan for this holiday home. Having acquired his report, he realized that his CIBIL TransUnion Score had dipped below 700 due to non-payment of dues accrued in the last couple of months on his credit card. On reviewing his credit report diligently, Jairam realized that these missed payments were on the add-on credit card he had given to his daughter a year back.

A man well versed with banking and financial nitty-gritties, Jairam knew that he will now have to forestall his holiday home buying plans till his credit score improves and he is able to get a loan. But the first thing he did after this revelation was to talk to his daughter and explain to her the critical need of using credit card wisely and paying credit card and loan dues on time. Jairam also organized a guest lecture at his daughter’s B-School by one of his banker friends on CIBIL TransUnion Score and need for financial discipline for a prosperous future.

It is imperative to know that the usage and payment pattern of add-on credit card given to spouse or children is captured in the principal card holders credit report and will affect his/her CIBIL TransUnion Score directly. An add-on card is an additional card which you can apply for against your primary credit card and will have all the features applicable on your primary credit card. If you are going to give an add-on card to your dependent spouse or children you need to make sure that he / she uses the credit card facilities prudently and ensure timely payments of the credit card dues. Therefore it is very important for the primary credit card holder to educate the user of an add-on credit card about using the credit card wisely. Remember that add-on cards mostly do not get a separate credit limit, it shares the credit limit on the principal holder’s credit card. Hence if your dependent spends Rs. 20000 on his/her add-on card, your collective limit comes down by Rs 20000.

Here are some basic guidelines on managing add-on credit cards for ensuring a healthy credit report and score:

1) Educate your dependent spouse or children on the responsibility and the terms and conditions of the add on credit card before giving it to them

2) Mutually decide and agree to monthly spending cap on the add on credit card

3) Monitor the spending on the add on credit card and ensure that it is always within the agreed cap

4) Set all credit transactions alerts to one mobile number / email ID. So, that you have a clear understanding of the usage of your all add-on credit cards.

5) Review your CIBIL Report and CIBIL TransUnion Score regularly to keep a track of all your credit obligations and your credit score

Jairam, however was wise that he checked his CIBIL TransUnion Score in advance and did not have to face the embarrassment of loan rejection. Having been the disciplined man himself, he managed to gradually build back his CIBIL TransUnion Score and get the loan for his holiday home.

About the author: The article is written by Harshala Chandorkar, senior vice president, Consumer Services and Communications, CIBIL