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Synopsis: Credit cards can play a pivotal role in improving your credit score if used wisely. Start by applying for a credit card that offers low fees and interest rates or a secured card if you have a low credit score. Key practices to improve your score include keeping your credit utilisation below 30%, paying bills on time, increasing your credit limit, and using your card frequently for everyday purchases. Additionally, avoid closing older credit cards and regularly monitor your credit report for errors. By following these tips, you can build a strong credit score and enhance your financial health.
Maintaining a strong credit score is essential for your financial health. It directly impacts your ability to access credit for things like home loans, car loans, and personal loans, often with more favorable interest rates. A good credit score reflects your reliability as a borrower, while a low score can limit your financial opportunities. One effective way to build or improve your credit score is through responsible credit card usage. This article outlines practical tips to help improve your credit score using a credit card.
1. Apply for a Credit Card
The first step in improving your credit score is acquiring a credit card. Look for a card with low or no annual fees and reasonable interest rates. However, if you have poor or no credit history, obtaining a regular credit card may be difficult. In this case, a secured credit card might be your best option. These cards are offered against a fixed deposit, which becomes your credit limit. Over time, responsible usage of a secured card can help build your credit score, allowing you to qualify for an unsecured card in the future.
Some banks, such as IndusInd Bank, offer Instant Credit Cards that come with several benefits, including:
A fully online application process with video KYC.
Reward points for everyday spending.
Travel-related offers and discounts.
Flexible repayment options like no-cost EMIs.
2. Keep Your Credit Utilisation Low
Credit utilisation is the ratio of the credit you've used to your total credit limit. Experts recommend keeping this ratio below 30% to maintain a healthy credit score. For instance, if your credit limit is ?20,000, aim to use no more than ?6,000. Consistently using a high percentage of your limit can hurt your credit score.
3. Pay Bills on Time
Timely bill payment is crucial for maintaining a good credit score. Even a single missed payment can negatively impact your score and remain on your credit history for years. To avoid missing payments, consider setting up automatic payments to ensure your bills are paid on time.
4. Increase Your Credit Limit
Increasing your credit limit can lower your credit utilisation ratio, as long as your spending remains the same. Many credit card providers automatically increase credit limits after 6–12 months of responsible use. Alternatively, you can request a credit limit increase or apply for a second card to improve your utilisation ratio.
5. Use Your Card Regularly
Regularly using your credit card for everyday purchases can help you accumulate benefits such as reward points, cashback, or discounts. For example, the IndusInd Bank Platinum RuPay Credit Card offers two reward points for every ?100 spent on UPI transactions and one point for non-UPI transactions. However, ensure you pay off your balance in full each month to avoid interest charges and maintain a positive credit score.
6. Avoid Closing Old Credit Cards
Closing a credit card you've used for a long time can negatively affect your credit score, as it reduces the length of your credit history. Keep older accounts open to maintain a longer credit history, which is beneficial for your score.
7. Monitor Your Credit Report
Regularly reviewing your credit report is a good habit. It allows you to spot any errors or fraudulent activities that may negatively impact your credit score. If you notice any discrepancies, promptly contact your bank to resolve the issue.
Key Takeaways
While credit cards can be useful tools for building credit and managing finances, they can also become a financial burden if used irresponsibly. High interest rates and missed payments can severely impact your credit score and increase your financial liabilities. By keeping your credit utilisation low, paying bills on time, and avoiding unnecessary spending, you can maintain a healthy credit score and enjoy the long-term benefits of responsible credit card usage.
