Credit cards have become popular among consumers. According to the Reserve Bank of India (RBI) data for March 2022, credit card users spend Rs 14,500 per month on an average as compared to Rs 700 debit card spends per month.
While misusing credit cards can land you in debt and hit your credit score, responsible usage can help you improve it. Credit score is a three-digit number that ranges between 300 and 900, where 300 is the lowest and 900 is the highest. A score above 700 is considered good and that above 750 is excellent.
Here are three ways through which you can improve your credit card through credit cards.
Repay on time and maintain low credit utilisation: Credit cards open a line of credit for you and every bill is reported to credit bureaus such as Credit Information Bureau (India) Limited and Experian. Timely repayment reflects positively on your financial habits and can help you build your credit score.
It is tempting to use up the entire credit available to you, especially when you know that you have enough funds to repay the dues. “However, doing this frequently gives the impression that you are not adept at managing your cash flow and this is not looked upon favourably. So, restrict your usage to 30 per cent of your available credit limit as a rule. You can exceed it in times of need, but do not make it a practice,” says Adhil Shetty, CEO, Bankbazaar.com.
Plan your expenses: Split up purchases between your credit card and other payment options to get the best rewards and deals. “This will not only help you stay within your spending limits, but it will also help you identify which of the expenses can be converted into EMIs and which need to be repaid immediately so you do not default on your payments. Doing this over time helps build financial discipline and gives you better insight into your own financial habits,” adds Shetty.
If you can manage to pay your credit card bills on time, you could keep using your older credit cards. Often older cards tend to give a solid and substantial credit history that has a positive impact on your CIBIL score.
However, while using multiple options, don’t lose track and take too much debt that you cannot manage.
Select intelligently: It is important to select a credit card that is aligned with your lifestyle and the type of expenses you make more often. For instance, if your work requires you to travel a lot, go for a card that helps you accumulate air miles. Don’t just look at cards with special offers. When banks provide special offers, they usually make hard enquiries into your credit score. This could lead to a negative impact on the score.