The number of credit card users in India was at an all-time high in 2018. According to the RBI, as of January 2018, the total number of credit cards in operation was over 36.24 million. This is likely because of the convenience of purchases and payments that a credit card brings to the table. However, it is wise to remember that you can also use a credit card to build or repair your credit score. While negligent usage and bad management of this tool will bring down your credit score, timely repayment will boost it.
Here’s how to use a credit card to optimise your credit score and pave way for easy access to credit in the future.
Limit your usage to one or two credit cards
Having more than one credit card is not harmful until you start using them irresponsibly or mismanaging them. On having access to ample credit, you may tend to use more credit than you can afford to repay. This results in fat credit card bills and interest accumulation, which you may not be able to pay. To avoid this, limit your usage to one or two credit cards that best serve your purpose. This way, you’ll have access to only the needed credit limit, curb your usage, and thus, reduce your bill.
Don’t close old credit card accounts having good payment records
If you have multiple credit cards and are considering shutting down an old account, think twice. While your credit history is based on your credit activity of the last 36 months, having an old credit card duly maintained with timely payments speaks well of your creditworthiness. So, choose to keep old accounts open unless you are unable to manage them and they are causing a credit downfall.
Maintain a low credit utilisation ratio
The credit utilisation ratio indicates the quantum of credit used as against the total credit limit that you have. The lower the ratio, the better it is for your credit score, the ideal being 40% or less. This is because minimal credit usage shows lenders that you are capable of surviving within your means and aren’t highly dependent on credit. It also shows that you aren’t credit-hungry. Further, staying within this limit ensures you are only using as much as you can repay and not risking accumulating debt.
Consistently pay the credit card bill in time and in full
Though credit card usage in the country has increased, statistics show that the number of defaulting credit card users rose by 1.78% in September 2018 and continues to increase each year. The micro level impact of this is a sharp drop in the individual credit scores. Though most credit cards have a 45-day window period to repay dues when you won’t be charged interest, it is prudent to pay off the entire bill in time to avoid incurring late penalties.
Issuers charge a whopping interest of 3-4% per month, which equals to 36-48% per year, on the outstanding bills. Such penalty is carried forward to the next cycle, which again attracts interest. To avoid paying a late penalty, you can make a minimum payment. However, even after making such payments, you still attract interest on the balance amount. This cycle continues until you pay off your entire bill. So, pay your credit card bills in time and in full.
Opt for interest-free services like emergency loans and ATM withdrawals
Some issuers offer additional features that add value to your credit card usage and also have a subtle impact on your credit score. For instance, you can make ATM cash withdrawals using the credit card and avail emergency loan against it. However, they charge a significant interest rate for offering the services. However, the Bajaj Finserv RBL SuperCard allows you to convert the pre-approved credit limit into an emergency loan at no interest for up to 90 days. Additionally, you can also make interest-free ATM cash withdrawals for up to 50 days. This way, you can arrange for funds during the interest-free period, repay the amount in the end at no additional cost, and thus, keep your credit score intact.
With these tips you can use a credit card right and improve your credit score in no time. Get started and apply for credit card that does it all, the SuperCard. Check your pre-approved credit card offer to view your customised deal and enjoy instant approval to start using your credit card without any delay!