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  • Can a Credit Card Improve Your Credit Score?

    Credit cards have earned a reputation of leading more people down the road to ruin than the devil himself. While procuring a credit card nowadays can be a piece of cake - as long as you have the right documentation - making them work to your advantage is a far more daunting task. Not only do they have the power to bury you under an avalanche of perennial debt, but they also possess the power to work wonders for your financial health by potentially improving your credit report and significantly impacting your CIBIL score in a positive manner.

    Banks and financial institutions today rely almost solely on CIBIL scores to gauge whether or not to issue loans or credit cards to customers. Applicants with bad credit history or even no credit history at all, stand little chance of acquiring credit from a lender.

    For those who already own one or more credit cards, there are numerous ways to use them to strengthen your CIBIL score.

    Make purchases using cash instead of credit

    Most people tend to make large purchases using credit cards in the hopes of paying off the amount over a period of time. While this might seem like a feasible option, it can have a detrimental effect on your CIBIL score if repayments are not made in a timely fashion.

    For example, Karan, a software engineer, recently acquired a credit card from his local bank. While his financial position was fairly stable, with no debt attached to his name, he decided to use his credit card to purchase airline tickets worth Rs 70,000 for a holiday to Scandinavia. However, his trip incurred expenses that went beyond his planned budget and ate heavily into his savings, forcing him to use his credit card once more to finance parts of his holiday. He eventually returned home saddled with a credit card debt of over a lakh and very little left to pay it off. Things turned sour quickly and he found he wasn’t earning enough to cover his monthly expenses as well as the repayments towards the card. Over time, he approached various banks seeking a loan, but was rejected due to the negative impact his credit card debt had on his CIBIL score.

    Keeping this situation in mind, it is always advisable to budget responsibly and use cash to make purchases wherever possible in order to minimise the risk of being weighed down by a maxed out credit card. Doing this will keep your card usage at a minimum and help build a credit history of sound money management.

    Use your credit card to regularly pay bills

    Using your credit card to regularly pay your internet bills, phone bills or utility bills like water and electricity, can help build a positive credit history and improve your CIBIL score. Since these expenses tend to be much lower compared to purchasing material goods, the debt they incur on your credit card can be paid off quickly or within a short span of time.

    Make repayments a habit

    Even if you cannot pay off the entire amount you owe on your credit card, you should still strive to make the minimum repayments on or before the scheduled due date. This will show lenders that you don’t have a habit of reneging on payments and can be a good credit risk in the long run. Keep in mind however, paying off as much of your credit card debt as soon as possible can increase your CIBIL score within no time.

    Although this is easier said than done, all it takes is a bit of willpower and smart credit card management to keep your financial status in the pink of health.

    Read More on CIBIL

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