A credit card is an excellent way for you to manage your financial requirements. However, do you know that just by using responsibly your credit card, a good score can be formed? Read on below to understand some important ways through which you can build your score using your credit card. Now, that credit card may be of any issuer whether an HSBC credit card variant i.e., HSBC Cashback credit card or HDFC credit card variant i.e., HDFC Millennia or any other credit card of your choice and preference. Mentioned here are some of the important ways of forming a strong credit score while swiping your card.
What are the ways to enhance your score while using a credit card –
Pay your outstanding dues in full and on time
The most important parameter that impacts your score is your repayment past record. Ensure to pay your card dues timely and in full every month as any late or missed payment can have a poor impact on your score and profile. Ensure to repay your outstanding credit card dues in full and avoid paying just the minimum balance. This is because interest is levied on the remaining outstanding due if you consider paying just the minimum amount.
Keep your CUR (credit utilisation ratio) low
The next crucial parameter that impacts your score is your CUR (credit utilisation ratio), which is the credit you are using on the overall credit card limit offered to you. Ensure you aim at keeping your CUR less than 30 per cent of your credit card limit. Let’s assume that your limit equals Rs 1,000, now, you must try keeping your limit usage below Rs 300 to maintain a good credit score. Credit bureaus often view a higher CUR (credit utilisation ratio) as a need for higher finances. Hence, this can lower your score.
Also Check: HSBC Cashback Credit Card
Make periodic use of your credit card
Using credit cards periodically and repaying the outstanding on time can assist in forming a positive credit past record. It is necessary to make use of your credit card in a responsible manner i.e., use just the amount that you can pay off every month.
Assess your credit report
It is necessary for you to keep a close eye on your credit report. Doing so would allow you to ensure there are zero fraudulent activities and errors. Ensure to report the mistakes or errors instantly and get them corrected. Mistakes in reports like incorrect credit accounts may bring your score down. You may get a free credit report copy from every bureau once in a year.
Avoid opening multiple credit accounts
Opening a lot of credit accounts can negatively impact your score. Just apply for the credit when you require it and pay for it on time and in full. It is tough to manage a lot of credit cards, so you must ensure to keep note of distinct payment due dates. You can do so by setting reminders on your mobile phone or by setting a standing instruction on your phone.
Ensure to keep your old credit cards active
The time period for which you use the credit is used by the lenders or issuers to evaluate your creditworthiness. The basic rule is your chances of forming a strong credit score are higher if you responsibly use your credit card. Ensure to keep all your previous credit cards open every time. It may not be advantageous to hold a card, use them for availing sign-up bonuses and close them afterwards. In place, ensure you make a good effort to shuffle the deck, look for the credit card that matches well with your criteria and use it.
Your credit accounts’ average age falls every time you apply for a new or close an existing card, which might impact your score. Your credit past record contains the length of your account and your responsible repayment record.
Maintain a contingency fund
It is very easy for you to get trapped in a debt cycle, particularly when you are attracted to making huge purchases. As fresh bills, as well as situations, continue to hit, a few card users consider it challenging to repay the outstanding debt. When your card balance starts to increase than usual, then that is a mark of danger. An increase in your credit utilisation usually results in a lower credit score.
To tackle such situations keeping a separate exigency fund is the prudent approach. Here in this approach, you can continue using your card for unplanned expenditures while still repaying your dues in full and on time and avoiding getting sucked into a debt trap.
The credit card of your preference can be used for forming a good credit score. Healthy credit habits that you must follow for a good credit score are making timely and full credit card repayments, maintaining a CUR (credit utilisation ratio) of within 30 per cent, assessing your credit report and raising complaints on viewing any dispute, keeping previous credit accounts active and others.
Frequently asked questions –
What’s a credit score?
Credit score infers a numerical figure assigned to an individual that shows up their credibility. It is a measure of how you may repay the borrowed amount.
Why is holding a strong score important?
Holding a strong score can make it simpler to get approval for credit cards, loans, or any other credit type. Also, it results in a lower rate of interest and better conditions on credit cards and loans.
How can you avail a credit card?
You can place an application for the credit card of your choice and preference with financial institutions or banks. You may apply for the preferred credit card on the online platform and if approved then the card would be delivered to you in a few days.
How do you use your credit card for forming a credit score?
To form a score with a good credit card, it is crucial to make timely repayments to keep your CUR (credit utilisation ratio) low. You must try and pay your outstanding balance in full every month and in case you cannot then ensure to pay at least the MAD (minimum amount due).