How to improve your credit score using a credit card responsibly

A well-established credit score and a strong history are crucial to your financial health. It is used as a tool by lenders to assess the risk of giving you money. So, the higher your credit score is, the higher your chances of repaying the debt. Having a good credit score will also help you get loans with lower interest rates. Therefore, if you have a low score, then you need to work towards improving it immediately.

One of the ways of improving your credit score is through a credit card. You can use it to build a positive payment history by consistently paying your bills on time. Additionally, you get cashback on your purchases, enjoy travel perks, rack up reward points and more. And while you have fun with it, you can also improve your score.

Learn how, by managing your credit card responsibly, you demonstrate to lenders that you are trustworthy and capable of managing debt, which ultimately boosts your credit score. 

Tips for improving your credit score using credit cards

Here are some of the ways in which you can boost your credit score using a credit card. 

Pay your dues on time

Payment history is one of the most significant factors in your credit score. Clearing your dues on time will be an effective way of building your score. At the same time, you can also avoid any penalties for non-payment or late payment of credit card dues. 

Maintain a low credit utilisation ratio

The Credit Utilisation Ratio is a percentage of the credit limit that you are allowed to use. The general rule of thumb is to only use below 30% of your utilisation ratio. So, if your credit card limit is around ₹2 lakhs, then you can spend around ₹60,000 in a single billing cycle. If you have a high Credit Utilisation Ratio, then it shows an extreme dependency on credit. Manage this ratio by setting spending limits or even monitoring your expenses frequently. 

Use your credit card frequently

Make regular use of your credit card since it will take some time for you to build a healthy score. Frequent use will show that you are actively managing your credit. At the same time, regular use does not mean spending recklessly. Instead, you can use it for expenses like fuel, grocery shopping, or even monthly bills. This regular use pattern will reflect positively on your credit report and will improve your score significantly.

Close your old credit card carefully

Your old credit cards will display a long history of handling credit. Closing them will impact the average length of your credit account, and you can also lose some of your credit limits. But this can increase your Credit Utilisation Ratio and give you a higher minimum threshold. So that can help mitigate your expenses. At the same time, you need to talk to your card issuer before closing your old credit to ensure that they increase your credit limit.

Diversify your credit types

Having a mixture of different credits will improve your overall financial health, particularly your CIBIL score. You can combine your credit card with home loans, personal loans, or auto loans. Having a diverse credit portfolio will display that you can handle different kinds of credit responsibly. This diversity will boost your creditworthiness to lenders. 

At the same time, every line of credit should come after you have carefully considered your ability to pay them off. If you take different types of credit and then manage them properly, it will demonstrate that you are a responsible borrower. This will improve your free credit score considerably and without a hitch.

Summing up

Improving your CIBIL score is vital since having a high score can benefit you in several ways. At the same time, you can begin applying the above tips once you have checked your free credit score. Checking your score frequently will help you assess how much you need to work on it. Once the score has reached a certain threshold, you need to maintain it at that level and not let it drop due to any reason.

FAQs on improving credit score

1. What is the fastest way of improving my credit score?

Some of the quickest ways of boosting your credit score are through making on-time payments, diversifying your different credits, limiting your new credit applications, and being conscious of your spending through the credit card.

2. What is considered to be a good credit score?

A range above 700 is considered a fairly good credit score. But it's better to aim higher than 750 since the better your score is, the more your chances will be of getting a low interest rate on any future loans.

3. How do I check my free credit score? 

You can check your credit score for free by logging into the CIBIL platform or even through third-party authorised platforms. All you need to do is log in to some of them and fill in your information, and you will be able to get your score.

4. What are the factors that affect my free credit score? 

Some factors that affect your score include your income, existing debts, any defaults or delays in any repayments, rejections for loans that you may have applied for, etc.

5. How can I maintain my credit score?

You can maintain your credit score by ensuring that you pay your dues on time. Do not spend frivolously, and do not close your previous accounts without talking to your lenders. With your free credit score, keep an eye on the improvement. However, you must be careful about how often you check your report. Checking it too many times might also affect the number.