For many, credit cards have become essential in daily life, offering convenience and flexible repayment options, allowing them to take greater control of their finances. They offer benefits like one-time signing bonus, cashback, rewards points, and frequent-flyer miles. Judicious use of cards offering these benefits can help maintain a healthy credit score, which is necessary to avail of other financial services.
Credit cards are also likely to be one of the first credit instruments a consumer uses, and prudent spending and timely payments could help develop a solid credit score, subsequently simplifying the loan process.
As per the Reserve Bank of India (RBI), there has been a 47.4 per cent increase in credit spending in FY23 rising from ₹14.32 lakh crore in the previous year. The transactions have seen a surge from 224 crore in the previous year to 291 crore in FY23.
Here are few ways to enhance your credit score through the responsible use of your credit cards:
Pay your credit card bill promptly
The key rule for credit card use is timely settlement of dues. Try to set recurring payments to clear outstanding balances on your card on time, as late payments will affect your credit and hence your credit score over time. Build a solid repayment history and boost your score.
Choose the appropriate credit card to minimise multiple applications
While getting a credit card has become more accessible, it’s crucial to exercise caution. Each application prompts a thorough credit score evaluation and applying for too many cards at a time might potentially make you look credit-eager and affect your score.
Hence it’s also unwise to accept every offer hastily. Instead, choose a card that suits your spending habits to maximise its benefits, rather than managing multiple credit cards of the same offering. It is advisable that in case of maintaining multiple cards, always go for ones that offer the desired benefits.
Maintain a good utilisation ratio for credit cards
Your credit card has a set limit based on your financial and credit history. While you can use the full limit, it’s advisable to stay well within it. Keeping a low utilisation ratio positively affects your credit score, indicating responsible credit management and reduced reliance on credit. Maintaining this ratio consistently can gradually improve your credit score.
Keep tabs on your credit report
Review your credit report and statements to track expenses and payment patterns, enabling better financial planning. Additionally, it allows quick action in case of unauthorised transactions by notifying the bank.
Make efforts to resolve previous due debts
In toto, a healthy credit score is key to effective financial management, stability and a positive reputation among credit bureaus.
If you happen to have charged off accounts and debts thereby, it is advised to resolve them at the earliest. Make sure you get your credit report updated with a “paid” status. This will offer significant improvements in your overall credit score.
It becomes important to note that by incorporating all the aforementioned measures and being patient with the process can help you maintain good credit habits and thereby an improved credit score. Building a good credit score is a gradual process and requires the incorporation of calculated spending habits. A higher credit can open doors for enhanced financial opportunities essential for one’s financial well-being.
Ramakrishnan Gopalan, Vice President and Head of Products and Solutions at Visa India and South Asia
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Updated: 02 Dec 2023, 11:33 AM IST