Credit cards are useful; well almost a necessity for some of us now. However what if we told that a credit card could help you improve your credit score. Though it may sound surprising but it is true. A credit card if used in the right way can not only help you create and maintain a healthy credit trail but can also help in improving the existing score of an individual. As we know that credit score is important as it reflects the financial robustness and credit worthiness of an individual. So if you want to improve your credit score we have just the right ideas for you.
Use your Credit Card Responsibly:
Phrases “using your credit card” and “using your credit card responsibly” are differentiated not just by a word. This word could change a lot for your credit score. When you use your credit card responsibly your CIBIL Rating will improve. The key to being a responsible user is:
ü Keep a Low Credit Utilization Ratio: Credit utilization ratio is the proportion of your average card spending to the sanctioned limit for your card. This ratio is considered per card wise as well for all cards put together if one has more than one card. Often one might wonder if they are able to pay on time then how does it matter how much of their sanctioned limit they utilize. However this is not the case; even if one does pay the entire amount a high credit utilization ratio reflects a credit hungry behavior on the part of the user. Apart from that high credit utilization is also an indicator of high default potential by the card holder in case of loss of regular stream of income.
ü Pay on Time: This of course is the simplest thing and needs no explanation but we will still mention about it briefly. Paying on time is the best thing you can do for your credit score. Payment history is the biggest contributor to the CIBIL score calculation and can impact it to a great extent.
ü Keep Old Cards: Another thing you can do to better the credit score with the help of credit cards is to keep old cards especially if you have a good track record of paying on time and keeping a low utilization ratio. A deeper credit trail gives a more accurate picture about a person’s credit behavior.
A Credit Card Could Help You Create a Credit Trail:
Absence of any type of credit will not lead to a good credit score as it does not give any idea to the prospective lender about how you will treat your debt. Thus if you have a credit card but are averse to using it we have a revelation for you. Using a credit card is the best way to create a credit history; one would not want to take a loan for it. Thus use your card carefully regularly, pay on time and do not go overboard with it. This will give you a stable credit trail.
A Secured Credit Card Could Help You:
A secured credit card can come as a life saver for somebody who has a low credit score and is unable to get a credit card for this reason. Any new loan or credit card is issued based on the credit trail one has; the lender accesses the applicant’s Credit Information Report (CIR) commonly known as CIBIL report. Based on the CIR they will then decide whether to issue a card or sanction a loan to the person. If the CIR does not give a healthy picture the application is likely to be rejected. In such a situation the applicant could try and get a secured credit card. A secured card is a card that is issued against a deposit that a person holds with the bank. Depending on the card issuer’s rule the credit limit could be 60% to 70% of the deposit value. Rest of the basics of credit card usage remains same. Thus the card issuer remains assured that in case of a default they have the deposit to fall back upon and their funds are safe.
Thus a secured credit can help not only loan defaulters but also those who have no credit trail. No credit trail means that there is no credit score too; thus getting a card without a credit score could be a challenge. However, not so if the applicant applies for a secured credit card. Here the issuer has collateral in the form of the deposit so they would be willing to issue a credit card. Thus a secured credit offers a solution to loan defaulters and those with no credit history.
As we said earlier the credit card offers not only convenience but also a simple way to improve one’s credit score; hopefully the above ideas can help you do so.