Credit scores play a crucial role in determining your creditworthiness and, thereby, your access to credit. Lenders look at your credit score to understand your repayment behaviour and probability of default. You can get quick and affordable credit easily if you have a good score. On the other hand, a low score can result in delays in loan approval and or higher interest rates. Therefore, maintaining a high credit score is essential to get affordable credit with ease. Since your credit score is affected by all the types of credit facilities you can avail, credit cards are also one important component. In this article, we would detail on How to use Credit Cards to improve Credit Score.
How to Use Credit Cards to Improve Credit Score?
Here are the 5 tips on you can improve credit score by using credit cards.
#1 – Choose the right credit card
Most issuers offer two types of cards – secured and unsecured. Secured credit cards are those you can avail of by providing the issuer collateral – generally an FD. On the other hand, unsecured cards are available without collateral but require a good credit score.
As such, you should rely on secured credit cards if you do not have the ideal score. This is because issuers can reject your application if you do not meet the requirements, which can negatively impact your credit score.
You should also check and compare cards to understand the terms and conditions. This can help you avoid being blindsided by higher costs and know which card has the best terms.
#2 – Use the card to pay your bills
Once you have a credit card, the smart thing to do is to use the card instead of making cash payments. When you use your credit card, you are availing short-term credit. This helps build your credit history, which is a crucial aspect of your credit score.
If you show that you can manage different types of credit without any issues, your score improves. So, be sure to use the credit card whenever you can and build your history for a good score.
However, ensure you do not use a credit card recklessly. Instead, use it based on a budget to ensure you can pay your credit card bills on time.
#3 – Pay credit card dues on time
Using a credit card is just one aspect of building your credit score. The other is to pay your dues on time and in full. Your repayment history holds the most weightage for your score; therefore, keeping the record clean is crucial.
Set reminders or standing instructions to avoid missing a due date for your credit card bill. If you cannot make the full payment, pay the minimum amount. However, make sure you do not make a habit of paying only the minimum amount.
This is because it can negatively affect your credit score and cause financial stress due to the high interest rates on delayed payments. Moreover, if your dues accumulate, you may find yourself in a debt trap, which is detrimental to your financial health.
#4 – Keep your utilisation limited
Finding a balance is critical in virtually every aspect, including the amount of credit you use. Therefore, it is crucial to ensure you do not use your credit limit to the maximum. Maxing out your credit cards can show an over-reliance on credit and an inability to manage your finances.
Both of these affect your credit score and, thereby, your creditworthiness. Ideally, you should keep your utilisation under 30% of your total limit. You can set an alert or manually estimate your utilisation before using the card to ensure you do not consistently utilise too much of your limit.
Remember that improving your credit score requires patience and consistency, so don’t falter on your utilisation and repayment. Now that you know how to use a credit card to build your credit score and creditworthiness, get the Bajaj Markets app.
On this one-stop financial destination, you can not only check your credit score for free but also apply for top credit cards from reputed banks. Compare various credit cards features and fees and apply online right from your smartphone! Download the app today from Play Store or App Store and get a credit card in just a few clicks.
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