The credit score is a term that has become very popular of late. This is because it has become an extremely important factor in getting a loan or a credit card. The higher your credit score, the better your chances of getting that loan or credit card.
If you didn’t know, credit score is a score given by credit information bureaus based on your credit history. Your credit information is collected by the credit information bureaus from financial institutions. A credit score ranges between 0 and 900. A score of over 700 is considered to be a good score by financial institutions.
Can you do anything to improve your credit score? Of course, you can. There are many ways you can improve your credit score including paying your loans on time and not defaulting on those loans. But the easiest way is to improve it using your credit card. Curious? Here’s how to do it.
Many are not too many
It is a myth that too many credit cards can affect your credit score. Contrary to popular belief, having many credit cards and paying all the credit card bills on time, every time will improve your credit score pretty quickly.
Every time you pay your credit card in full and before the due date, it improves your credit score. This way, you can use every credit card to build your credit history. However, having too many credit cards and having outstanding balances on them will negatively affect your credit score.
Also, applying for too many credit cards at the same time will also have a negative impact on your credit score. Every time a credit card application gets rejected, it will affect your credit score. So, there should be a good time gap between one credit card application and another.
Use credit wisely
Your credit score will have a component on how you utilise the credit on your credit card. Ideally, you should not be using up all your credit limit. For example, if your credit limit is Rs. 50,000, you shouldn’t be swiping Rs. 50,000 every month. Credit bureaus give higher scores to those to stick to a credit utilisation of 10% to 30%. This means that if your credit limit is Rs. 1 lakh, you should be using Rs 10,000 to Rs 30,000 if you want a good credit score.
In this case, too, having many cards help. If you want to spend more than Rs 30,000 when your credit limit is Rs. 1 lakh, you can use multiple cards so that the credit utilisation stays low for all the cards. What if you want to spend more but don’t have too many cards? You can ask your bank to raise your credit limit.
On time payment
As mentioned earlier, you should ensure that you pay your credit card bills on time, every time. You should pay the full amount that is due and not the minimum due. Having huge outstanding balances on your credit card is not good for your credit score.
Keep the old
There is a component called ‘age of accounts’ in your credit score. The older your loan or credit card accounts, the better. So, don’t close those old credit cards. Keep using them.
Check your eligibility
A number of people don’t know that credit card or loan rejections can have an adverse impact on your credit score. So, if you apply for a credit card and your application is rejected, your credit score will fall. What can you do to avoid this? You can apply for only those credit cards that you are eligible for.
Check your eligibility before you apply for a credit card. Check with your bank regarding your eligibility. This usually depends on your income and your credit score. You can apply for the card when your bank says that you are eligible. This will lower the risk of your application getting rejected. Every time, you get a new card and use it, your credit score improves. So, be careful with those applications.
Using your credit cards wisely is one of the best and easiest ways to improve your credit score quickly. Don’t have a credit score? Get a credit card and build your credit score. Sometimes banks may not offer you a credit card if you don’t have one already. In this case, you can get a credit card against your fixed deposit. Credit cards can be a good thing if you know how to use them.