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 card for your parents, spouse, children (above 18 years) and siblings. Its features and benefits are similar to that 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 regular credit card. It can help avail various financial and lifestyle benefits including lounge access, discounts on card spends, 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 case of 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 annual fee waiver, bonus reward points, free vouchers, etc on exceeding predetermined level of annual spends. For instance, HDFC Moneyback Credit Card offers Rs 500 worth e-voucher on spend of Rs 50,000 in a quarter. In case of Citi Rewards Credit Card, the renewal fee is waived on annual spends 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 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 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 spends incurred by family members. This can help instil 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 card holder, you must keep track of card spends made by add-on cardholders. Some card issuers allow primary card holders to set sub-limit on add-on credit cards to rein in the risk of impulsive spending.

Risk to credit score from higher credit utilisation ratio:

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

By Naveen Kukreja, CEO & Co-founder, Paisabazaar.com