How to Improve Your Credit Score with a Credit Card?

A credit score or CIBIL score is one of the essential parameters through which banks and lending institutions assess a prospective borrower’s financial health. Lenders use this information to assess how effectively applicants can manage their credit, which influences their decisions on granting loan approvals. A higher score can make it easier to get sanctions for new loans and other types of credit at competitive rates of interest as compared to a low credit score. In this article, we delve into understanding the credit score range, what it means to the lenders, and how one can improve a low credit score.  

What is a 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 such as TransUnion CIBIL, Experian, Equifax, and CRIF High Mark by assessing your credit reports.   

A credit score of 750 is considered ideal. Individuals with such a credit score can have a better chance of borrowing higher loan amounts with the best possible rates and terms. Contrarily, a lower score may fetch you loans of a smaller principal amount and higher interest rates.   

​The following table displays the CIBIL score range:​​​​  

​​​Note: The CIBIL score range is defined as per the industry standards. ​​  

Also Read: What is CIBIL Score and How It Works  

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. Credit cards can also be used effectively to ​improve your credit score.         

How Credit Cards Affect Your Credit 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 low or nil credit history, using a credit card wisely can increase your credit rating.  

Also Read: Boost Your Credit Score by Minding the Factors that Affect It  

7 Tips to Improve Your Credit Score with a Credit Card 

There are several ways to use credit cards to improve 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 expensive purchases intending to pay them off later. At times, this can have negative consequences if repayments are not made on time thereby affecting the CIBIL score. Therefore, it is best to budget smartly and initiate cash transactions whenever possible to avoid exhausting 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 such as water and electricity with a credit card to create a positive credit history and improve 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 amount due on or before the due date. Paying off credit card debts, as much as possible, can increase 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 do not 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 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 

Errors, outdated information, or delays in updating your credit records can sometimes negatively impact your credit score. To avoid this, regularly check your CIBIL score to spot potential inaccuracies and resolve 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, you can follow these practical tips to improve your CIBIL score.  

Also Read: Important Things Might Go Wrong with Your CIBIL Report  

The Do’s and Don'ts of Credit Card Usage

Here are certain do’s and don’ts that you should be aware of in order to make the most of your credit card:  

Do’s of Credit Card Usage 

• Pay Your Balance in Full: Always try to pay off your credit card balance in full each month to avoid accruing interest charges. 
• Set up Payment Reminders: Ensure timely payments by setting up reminders or automating payments to avoid late fees and potential credit score impacts. 
• Monitor Your Statements: Regularly review your credit card statements for unauthorised transactions or errors, promptly reporting any discrepancies to your card issuer. 
• Keep Credit Utilisation Low: Aim to use only 30% of your total credit limit to maintain a healthy credit score and demonstrate responsible borrowing behaviour. 

Don’ts of Credit Card Usage 

• Don’t Miss Any of Your Payments: Avoid missing credit card payments as it can lead to late fees, penalty interest rates, and negatively impact your credit score.  
• Don't Overuse Your Credit: Avoid exhausting your credit limit. Keeping your credit utilisation ratio below 30% helps maintain a good credit score and shows responsible financial management.
• Don’t Apply for Credit Cards if Not Required: Avoid applying for multiple credit cards if not required. It is important to assess your financial needs carefully and consider the implications of each card before applying, ensuring they align with your financial goals and ability to manage responsibly. 

Summing Up 

A credit score is important for loan approvals and interest rates. Scores range from 300 to 900, with higher scores indicating better creditworthiness. Managing credit cards wisely, paying bills on time, and maintaining low balances can improve credit scores. Regularly monitoring and correcting errors in your credit report also helps maintain a healthy score.