Want to apply for add-on cards? Here are the pros and cons

Add-on or supplementary credit cards are additional cards issued against primary credit cards for your parents, spouse, children (above 18 years) and siblings. Its features and benefits are similar to those of primary credit card. However, like most financial instruments, add-on credit cards comes with its share of pros and cons.

Let’s first look at some of the benefits associated with availing add-on credit cards: 

Access to credit card benefits:

Add-on credit cards are aimed at regular credit cardholders’ family members who may otherwise be ineligible to avail of a regular credit card. It can help avail various financial and lifestyle benefits including lounge access, discounts on card spend, zero-cost EMIs, and free movie tickets, etc.

Increased reward points for higher redemption benefits:

Swiping add-on cards for making payment earns similar reward points as applicable in the case of a primary credit card. This may increase your scope of deriving greater redemption benefits in the form of free vouchers, air miles, merchandise, etc.depending on the reward point redemption program of the credit card.

Higher probability of exceeding annual spending threshold:

Most credit cards come with milestone benefits in the form of the annual fee waiver, bonus reward points, free vouchers, etc on exceeding the predetermined level of annual spendingFor instance, HDFC Moneyback Credit Card offers Rs 500 worth e-voucher on spend of Rs 50,000 in a quarter. In the case of Citi Rewards Credit Card, the renewal fee is waived on annual spending of Rs 30,000.

With spends through add-on credit cards being added to the primary credit card’s bill, family members’ expenses routed through add-on credit cards can increase your chance of exceeding the threshold spend amount, and thereby earn applicable benefits.

Zero annual/renewal fees:

Generally, most card issuers offer a pre-set number of add-on cards for free. This is usually enough to cover all non-working members of a nuclear family. Remember that exceeding this limit can incur an annual fee on every incremental add-on credit card.

Instilling financial discipline:

Add-on credit card transactions are consolidated into the primary card’s statement, making it convenient for you to keep a tab on the spending incurred by family members. This can help instill financial discipline among them, especially the younger ones exposed to instant credit for the first time.

Disadvantages of add-on credit cards-

Risk of unmanageable bills:

This is a major drawback of providing an add-on card to your family member(s), especially if they are financially undisciplined or prone to impulsive spending. As the primary cardholder is solely responsible for the repayment of the consolidated bill, any delay or default in repayment, due to unmanageable debt, can adversely impact his credit score.

As a primary credit cardholder, you must keep track of card spends made by add-on cardholders. Some card issuers allow primary cardholders to set sub-limit on add-on credit cards to rein in the risk of impulsive spending.

The risk to credit score from higher credit utilization ratio:

Credit utilization ratio (CUR) is the proportion of the total credit limit availed by you. Credit bureaus usually reduce credit score on exceeding CUR of 30 percent, as higher CUR is interpreted as a sign of credit hungriness. Given that spending by add-on credit cardholders is added to the primary credit card bill, increased spend through add-on credit cards can increase the risk of breaching 30 percent CUR.

The best way to deal with it is to request your card issuer for credit limit increase. An increased credit limit, coupled with disciplined usage should help in containing total card spends within the 30 percent CUR.

*This article was published in Deccan Chronicle on 23 January 2020.

Leave a Reply

Your email address will not be published.

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>