Ways to Improve Your Credit Score with a Credit Card

A credit score or CIBIL score is one of the essential elements through which banks and lending institutions can assess a prospective borrower’s financial health. It tells lenders how sensibly applicants handle their credit helping them decide whether or not to grant loan approvals. A higher score makes it easier to get sanctions for new loans and other types of credit at competitive rates of interest. But before you can know how to improve your credit score particularly by using your credit card, you ought to first understand what it is. 

What is a CIBIL/Credit Score?

A credit score or CIBIL score is the summary of your credit history in the form of a three-digit figure ranging from 300 to 900. It is generated by credit bureaus like TransUnion CIBIL, Experian, Equifax and CRIF Highmark when they pull up your credit report.  

A credit score closer to 900 is considered ideal. Lenders usually favour applicants with a score of 750 and above. Such individuals can borrow higher loan amounts with the best possible rates and terms. Contrarily, a lower score may fetch you loans of a smaller principal sum at heavier interest rates.  

Importance of a Credit Score for a Credit Card

Just like any other form of credit, when you apply for a credit card, lenders will look up your credit score to examine your creditworthiness and ability to repay debts on time before approving your application. Interestingly, credit cards can also be used effectively to improve your credit score.  

How Credit Cards Affect Your Credit Score

Credit cards can enhance your monetary well-being by boosting a failing CIBIL score. Banks and financial institutions primarily rely on CIBIL scores to determine eligibility for issuing loans or credit cards to customers. Whether you have a bad or nil credit history, using a credit card wisely can elevate your credit rating. 

Best Ways to Improve Your Credit Rating with a Credit Card

There are several ways to use credit cards to build your credit score. If you already own one or even a few of them, bear in mind the following considerations: 

1.Make Credit Purchases Smartly

Most people prefer using credit cards to make heavy purchases intending to pay them off later. At times, this could backfire if repayments are not made on time thereby affecting the CIBIL score. Therefore, it’s best to budget smartly and initiate cash transactions whenever possible so as not to overshoot the credit limit. This way you can keep your card usage to a minimum and achieve a favourable credit history with realistic money management. 

2.Pay Bills with a Credit Card

You can regularly pay internet bills, phone bills and utility bills like water and electricity with a credit card to create a positive credit history and bolster your CIBIL score. Since these expenses are much lower when compared to buying material goods, the resultant credit card dues can be comfortably paid off. 

3.Make Regular Repayments

Even if you cannot clear the entire amount outstanding on a credit card, try to pay the minimum sum on or before the due date. Paying off credit card debts, as much as possible, can hike your CIBIL score quickly qualifying you as a low credit risk. 

4.Set Repayment Reminders for your Credit Card

A regular repayment schedule can work wonders for your credit rating. Credit card users should always pay their credit dues on time. Delays in payments or pending dues may attract penalties that can cause a dip in your CIBIL score. Hence, set reminders for EMI payments so that you don’t miss out on any instalments. 

5.Maintain Older Credit Cards

Past credit history that spans a longer period of time can strengthen your credit profile. So, retain old credit cards to build a sound credit history and raise your credit score, and pay your credit bills in full and on time.  

6.Increase Your Credit Limit

Your credit utilisation ratio plays a significant part in supporting a good credit score. Restricting credit usage based on your allotted limit can increase your score. But once you overstep the limit, it has the opposite effect of reducing your credit score. This can be managed best by requesting your lender to customise the credit limit according to your expenses. 

7.Check Your CIBIL Report for Errors

Sometimes, there could be mistakes, incorrect information or a delay in updating details in your credit records; which may potentially bring down your credit score. Hence, check your CIBIL score periodically to identify possible errors and rectify them by submitting a CIBIL Dispute Resolution form online. 

It is vital to maintain a good credit score even after you secure a loan. But if your credit score is already on the lower side, do not despair. You can follow these practical tips to augment your CIBIL score. 

Summing Up

Using a credit card is one of the most efficacious ways to enhance your credit record by showing lenders how responsibly you can handle credit. Make sure you utilise credit cards to initiate timely bill payments and use a modest portion of the credit available to you. Even one transaction on your card, at least once a month, is sufficient to develop a strong and consistent credit history as long as there are no late or missed payments. Also, try to clear the full credit card bill every time. Leaving a balance consistently may prove counterproductive to your credit score.