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How to Use Your Credit Card to Increase Your Credit Score

By Chanel Rick - Jul 12,2022
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Meet Neil, a young engineer. He recently graduated from a reputable institute and bagged a job during campus placement. Filled with excitement over the turn of events, he decides to treat himself. Neil begins by applying for credit cards but meets rejection instead. Unbothered by this, he decides to apply for a personal loan instead – surely he could use those resources to fund some big-ticket purchases? Unfortunately, like before, he meets another rejection. 

So, what went wrong? 

It’s clear that Neil likely suffers from a lack of credit score. 

Thousands of young individuals encounter the bitter reality of poor credit scores. Some older individuals, too, suffer from the same problem. It goes without saying that a high CIBIL score can solve your issues with availing credit cards or loans. However, what do you do if your score is low or in some cases, non-existent? 

The latter is usually a concern for young students and new working professionals. Without any prior credit history, they struggle to avail credit from banks and other lenders. It can be remedied by approaching banks or online lenders that offer credit to such individuals. 

The Benefits of High Credit Scores

A CIBIL score opens doors to credit cards and personal, consumer and other types of loans. In India, lenders refer to one of the four credit bureaus to view credit scores – TransUnion CIBIL, Experian, Equifax and CRIF High Mark. For borrowers, credit scores range between 300 to 900, and your score can reveal the extent of your creditworthiness to lenders. 

Ideally, banks and lenders prefer applicants with a credit score of 750 or more. Check out the following benefits of owning a high CIBIL score. 

●    Low-Interest Rates

Based on risk profiles, a bank or lender can judge the loan amount to sanction. Those with good scores can avail of low-interest loans that significantly reduce the EMI. 

●    High Loan Amount 

Banks and lenders are more willing to sanction high loan amounts to individuals with high credit scores. While the risk is high for the lender, a high CIBIL indicates a healthy credit repayment history. 

●    High Credit Limits 

Since credit card limits depend on your credit score and income, the issuer may accept requests to raise the limit. Good CIBIL scores indicate responsible credit usage, which boosts the assurance of receiving timely repayments. 

By maintaining a healthy credit score, lenders are more likely to accommodate requests for increased credit limits or higher loan amounts. Paying your credit card bills and other EMIs can improve the state of your credit score, even if they were previously low. 

Increasing Credit Scores with Credit Cards

Certain banks and online lenders offer credit cards to college students and young professionals with no credit history or who have poor scores. By availing credit through these mediums, you can begin the journey of building or improving your CIBIL score. Use the following tips to increase your credit score in a matter of time! 

1. Limit Credit Utilisation 

Every month, limit your credit card usage to under 30% to avoid overutilisation. Banks view excessive usage of credit as a sign of cred-hungriness. It could set a bad precedent when you seek credit, like increased limits or loans. Furthermore, credit bureaus may reduce your credit score if credit usage exceeds the 30% mark. 

In case the credit utilisation frequently surpasses 30%, you can request a higher limit from the card issuer. If rejected, try applying for a new credit card. 

2. Avoid Multiple Credit Applications 

While some believe applying for credit cards through multiple issuers can increase the chances of approval, it’s actually a bad practice. Hard enquiries, like issuers fetching your credit history, appear on your overall credit report. Each of these enquiries reduces your credit score by a few points. 

3. Make Timely Repayments 

The quickest way to build your credit score is to ensure paying back the dues on time. That means paying back the outstanding amount in full, not in part payments. Avoid excessively relying on credit cards to fund daily expenses. Only avail credit if you can repay the amount without delayed or missed payments. 

If you’re struggling to repay card dues, try to convert them into EMIs. It will make repayment easier without suffering from the consequences of poor repayment practices.

4. Carefully Close Old Credit Cards 

Credit bureaus include the average age of your credit cards and loans while evaluating your credit score. By carelessly closing old credit cards, you risk the chance of reducing the average tenure of your credit facilities. Moreover, it will reduce the credit limit and potentially increase your utilisation ratio beyond 30%. 

Before closing your credit card, request other card issuers to increase the credit limit allocated to you. It will lower the impact of credit card closures.  

By following these methods, you can have a healthy credit score in no time! So, while it may take a few months for the improved scores to reflect on credit bureaus, invest the time for it today. Increase your credit scores while using credit cards loaded with exciting benefits and rewards – visit Bajaj MARKETS today! 

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Bajaj Finserv Direct Limited ("BFDL") is primarily engaged in distribution of financial products and services through its digital platform (“Bajaj Finserv MARKETS”) and inter alia renders services of customer acquisition, providing preliminary credit support activities, fulfilment services and post-acquisition customer services to Banks, NBFCs, HFCs. BFDL is also a registered Corporate Agent (Composite) under valid IRDAI registration number: CA0551 valid till 10-Apr-2024 for solicitation and servicing of Insurance Products. Registered Office: Bajaj Auto Limited Complex, Mumbai – Pune Road, Akurdi, Pune – 411 035 CIN: U65923PN2014PLC150522