7 Steps to build the perfect credit score with credit cards right now

In India's growing financial ecosystem, maintaining a stellar credit score is crucial. A solid credit score not only enhances your chances of securing loans and credit cards. In addition, it ensures that you benefit from favourable interest rates and better financial products. Whether you are planning to buy a home, a car, or simply want to increase your financial credibility, having a high credit score is invaluable. 

This article will take you through how to build a credit score using credit cards, tailored to the needs and intricacies of the Indian banking sector.

1. Understand the basics of credit scores

In India, credit scores are offered by CIBIL (Credit Information Bureau India Limited). A credit score typically ranges from 300 to 900, with scores above 750 considered excellent. Several factors determine your credit score:

• Payment History: This is the most significant factor contributing to a large share of your score. It reflects how consistently you have paid your bills in the past.

• Credit Utilisation Ratio: This measures the amount of credit you are using relative to your total credit limit and holds great importance for your score.

• Length of Credit History: A longer credit history provides more information about your spending habits. It is great for you if you have long and favourable credit history. 

• Types of Credit: Having a mix of credit accounts, such as loans and credit cards, can boost your score.

• New Credit Enquiries: Frequent applications for new credit can negatively impact your score as they suggest potential financial strain.

Understanding these factors provides a clear roadmap for adjusting your financial behaviours to improve your credit score effectively.

2. Select the right credit card

Choosing the right credit card is pivotal in your journey to build a credit score. Look for cards that offer benefits tailored to your financial situation and spending habits. You can consider the IndusInd Bank Platinum RuPay Credit Card. This card offers numerous advantages, such as reward points for every purchase, shopping discounts, and travel benefits. Additionally, it is a card that allows you to integrate it with UPI and make transactions through UPI-enabled apps. These perks can enhance your credit card experience while supporting responsible financial management. When selecting a card, consider factors like annual fees, reward programmes, and other benefits that align with your lifestyle and financial needs.

3. Apply for your chosen credit card

Once you have identified the right card, apply for a credit card carefully. Each application results in a hard inquiry on your credit report that temporarily affects your score. Before applying, review your credit report for any inaccuracies and dispute them if necessary. If you have a limited credit history, consider a secured credit card that requires a fixed deposit as collateral. This reduces the lender's risk and can strengthen your credit profile over time. Be strategic about applications to avoid unnecessary hard inquiries that might lower your score.

4. Make payments on time

A strong payment history is critical to maintain and build a good credit score. Consistently paying your credit card bills on time is crucial. Establish automatic payments or set reminders to avoid missing due dates. Missing even a single payment incurs late fees and higher interest rates, significantly impacting your financial health and credit score. Prioritise timely payments to avoid these penalties and maintain a positive credit trajectory. Consider creating a budget that accommodates your monthly payments comfortably, ensuring that you meet your obligations without strain.

5. Keep your credit utilisation low

Credit utilisation, the ratio of your outstanding credit card balances to your credit limits, significantly impacts your credit score. It is advisable to keep this ratio below 30%. For instance, if your credit limit is ₹1,00,000, try to maintain your balance below ₹30,000. A lower ratio shows lenders that you manage credit responsibly. In India, where financial discipline is highly valued, maintaining a low credit utilisation ratio demonstrates prudence and effective credit management. Pay off your balances in full wherever possible to avoid interest charges.

6. Regularly review your credit report

Regularly monitoring your credit report is essential to ensure accuracy and track your financial progress. Reviewing your report allows you to spot errors or fraudulent activities early and dispute them promptly. Ensuring correctness in your credit report prevents long-term damage to your score and confirms your efforts in building credit get reflected correctly. It is also a good practice to understand what factors impact your score positively or negatively, allowing you to adjust your financial habits accordingly.

7. Diversify your credit mix

Lenders in India prefer to see a variety of credit types in your profile. While credit cards are excellent tools for building credit, having different forms of credit—such as personal loans, home loans, or auto loans—can further enhance your score. However, it is crucial to only expand your credit mix if necessary and if you can manage it responsibly. The focus should be on demonstrating a well-rounded and responsible financial profile to potential creditors, rather than just diversifying for its own sake. Being measured in your financial decisions reflects stability and reduces the perception of risk.

Additional tips

• Do not Close Old Accounts: The age of your credit history has a significant impact on your credit score. In India, as elsewhere, closing older accounts can shorten your credit history and potentially harm your score. Keep old accounts open if possible to maintain a longer credit history.

• Limit “Hard” Inquiries: Frequent applications for new credit can lower your score as each application results in a hard inquiry. Be selective and purposeful about the credit applications you submit to avoid negative impacts on your score.

Conclusion

Building the perfect credit score with credit cards in India is a steady process, requiring discipline and informed financial management. By understanding the factors that influence your score and adopting prudent credit habits, you can build a robust financial foundation. Make informed choices today to set yourself on the path to financial success.