Credit cards have become popular with consumers. According to Reserve Bank of India (RBI) data for March 2022, credit card users spend an average of Rs 14,500 per month compared to Rs 700 per debit card per month.
While misusing credit cards can put you in debt and hurt your credit score, responsible use can help improve it. Credit score is a three-digit number between 300 and 900, with 300 being the lowest and 900 the highest. A score above 700 is considered good and one above 750 is excellent.
Here are three ways to improve your credit score with credit cards.
Repay on time and keep credit utilization low: Credit cards open a line of credit to you and every bill is reported to credit bureaus such as Credit Information Bureau (India) Limited and Experian. A timely repayment is a positive reflection of your financial habits and can help build your credit score.
It’s tempting to use up all the credit you have, especially when you know you have enough funds to repay the dues. “However, this often gives the impression that you are not good at managing your cash flow and this is not well seen. So limit your usage to 30% of your available credit limit as a general rule. You can override it when needed, but don’t make it a practice,” says Adhil Shetty, CEO of Bankbazaar.com.
Plan your expenses: Split purchases between your credit card and other payment options to get the best rewards and offers. “This will not only help you stay within your spending limits, but it will also help you identify which expenses can be converted to EMI and which need to be reimbursed immediately so you don’t miss payments. Doing this over time helps build financial discipline and gives you a better sense of your own financial habits,” adds Shetty.
If you manage to pay your credit card bills on time, you can continue to use your old credit cards. Often older cards tend to have a strong and substantial credit history which positively impacts your CIBIL score.
However, while using multiple options, don’t lose sight of it and don’t take on too much debt that you can’t handle.
Select intelligently: It’s important to choose a credit card that matches your lifestyle and the type of spending you make more often. For example, if your job requires you to travel a lot, opt for a card that helps you accumulate airline miles. Don’t just look at cards with special offers. When banks offer special offers, they usually do extensive research on your credit score. This could negatively impact the score.