Credit cards are powerful tools that, when used wisely, can help boost your financial health. One significant advantage is their ability to improve your CIBIL score—a crucial factor that banks and financial institutions consider when issuing loans or credit. Here's how you can use a credit card to your advantage and build a strong CIBIL 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.
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.
As a parent, it is important that you teach your children, especially teens the importance of having a fair understanding about personal finance. From budgeting their allowances to controlling their spending habits, there is only so much you can guide your kids about. Teaching your teenage kids the importance of having and using a credit card is equally important. It is also important to educate them about the importance of having a high credit score. Therefore, it is your responsibility to teach your children about how to use a credit card responsibly.
Here are some important tips that will help you in educating your children about using credit card:
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.
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.
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Yes, a credit card is one of the best ways to improve credit and enhance your credit scores by demonstrating how you manage credit regularly. To increase your credit score, make sure to use your credit cards to make timely bill payments and use only a small portion of the available credit on your card.
To develop credit, you must use your secured credit card at least once every month. Credit is built even if you don't use your card. However, making at least one transaction every month might speed up the process provided that it doesn't result in late payments.
Leaving a balance on your credit card does not improve your credit score. Instead, you will be charged money in the form of interest. If you have a high balance on your credit card, your credit score will be lowered.
Yes, to maintain good credit and avoid debt, it is advisable to pay off your credit card bill in full each month.
If you overpay, any money in excess of the sum due reflects as a negative balance on your account. Negative balances simply appear on your credit report as zero balances and have no impact on your credit utilization.
Payment history is the most important factor that impacts your credit score.
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