How to boost your CIBIL score using credit cards: A simple guide

Discover how credit card usage impacts your CIBIL score in this user-friendly guide. Uncover the essentials of managing credit cards to maintain good CIBIL score range to make informed decisions.

How to use credit cards to improve your CIBIL score

Having a good CIBIL score is important for many reasons. A good CIBIL or credit score can open doors to better financial products such as loans and credit cards with lower interest rates, helping you save money in the long run. It also makes it easier to rent or purchase a home as many landlords and lenders check CIBIL scores before making a decision. In short, a good credit score is essential for managing your finances and achieving financial stability.

Let's understand what a CIBIL score is, the importance of a good credit score, and how to leverage credit cards to ensure a healthy CIBIL score.

What is a CIBIL score?

In India, the Credit Information Bureau India Limited provides a CIBIL score or credit score that reflects your creditworthiness. It's a numerical representation of your credit history and how you manage your credit obligations. 

Your credit score can range from 300 to 900. The higher your score, the better your credit profile is. It takes into account your credit history, payment behaviour, outstanding loans, and other credit-related information. 

A higher credit score means that you pose less risk to lenders, which increases your eligibility for loans and obtain better interest rates.

What is a good CIBIL score range?

While the precise range can differ slightly among lenders, a CIBIL score over 750 is typically deemed favourable. A good CIBIL score plays a pivotal role in securing loans and credit cards at better interest rates. It signifies financial responsibility and enhances access to various financial opportunities and benefits.

How to increase your CIBIL score using credit cards?

Using credit cards effectively can help you maintain a healthy CIBIL score. Here's how you can do it:

• Lengthening your credit history: It's important to have a long credit history. In general, the longer you have a good credit account, the better your CIBIL score will be. Maintaining a positive credit history can be achieved by responsibly using a credit card and making timely payments.
• Strategic usage: Having multiple credit cards can give you access to more rewards and benefits. However, it is imperative that you do not spend more than you can afford and that you pay off your credit card debt in a timely manner. Otherwise, the interest and late fees can quickly add up and hurt your credit score.
• Avoid closing credit cards: Closing credit card accounts might seem like a good idea to declutter your financial life, but it can harm your credit score. The length of your credit history and credit utilisation ratio can be adversely affected. Instead, consider keeping your older credit cards active for occasional small purchases.
• Timely repayments: Paying your credit card bills on time is one of the most critical factors in maintaining a good CIBIL score range. Late payments can severely hurt your score and result in negative consequences.
• Understanding credit utilization: Credit utilisation refers to the percentage of your available credit that you are using. A high utilisation ratio can indicate a higher risk to lenders. To improve your credit score, it's recommended that you maintain a credit utilisation rate of less than 30% of your total credit limit.
• Redeeming rewards regularly: Many credit cards offer rewards, cashback, or points for various transactions. Redeeming these rewards is always a good idea. Not only do you enjoy benefits, but consistent reward redemption also shows responsible card usage.
• Healthy financial practices: Besides credit card usage, maintaining a healthy CIBIL score involves managing your overall finances responsibly. This includes paying all your bills on time, managing other loans effectively, and having a diverse credit mix.

To sum it up, paying your bills on time, keeping your credit utilization ratio low, and not applying for too many credit cards are all key steps to maintaining an excellent CIBIL score.

Additional tips for improving your CIBIL score

Several other practices can positively impact your CIBIL score, beyond credit card usage:

• Controlled loan applications: Applying for multiple loans simultaneously can raise concerns among lenders about your financial stability. Make sure to apply for loans only when necessary to avoid unnecessary enquiries on your credit report.
• Begin with a secured credit card: If you want to build credit, getting a secured credit card like the IDFC FIRST WOW! Credit Card, is a good idea. Secured credit cards are issued against a fixed deposit, which makes it accessible even to those with a low credit score or limited credit history. So if you are newly employed, a student, freelancer or even a homemaker, you can use a secured credit card to start building your credit score. Just ensure that you make payments on time and keep balances low.
• Regular credit report checks: Periodically reviewing your credit report helps identify any inaccuracies or fraudulent activities. Addressing such issues promptly ensures that your score remains accurate and unaffected.
• Manage debt wisely: While credit cards offer convenience, avoid accumulating excessive debt. Pay off your credit card balances monthly to prevent high-interest charges and credit utilization issues.

In conclusion

Maintaining a healthy CIBIL score through credit cards is easy if you practice prudent financial habits. By understanding the factors that impact your score and adopting responsible financial habits, you can keep your creditworthiness intact and open doors to better financial opportunities.

If you are seeking a reliable financial partner to aid you on your journey toward a robust CIBIL score, consider a IDFC FIRST Bank Credit Card. With a range of thoughtful features, such as EMI conversion, low interest rates starting at just 9%, and never-expiring reward points, they are designed to enhance your financial capabilities. 

(This article is part of IndiaDotCom Pvt Ltd’s Consumer Connect Initiative, a paid publication programme. IDPL claims no editorial involvement and assumes no responsibility, liability or claims for any errors or omissions in the content of the article.)