Do you know how credit cards affect your credit score?

Credit cards provide a great insight into your credit history including your debt management skills. Apparently, owning credit cards is a great way to avail a line of credit for emergency expenses. Furthermore, it is also good for your CIBIL score, but the bigger picture has something more to offer.

If your goal is to achieve/maintain a minimum score of 750, it’s better to take calculated steps when using credit cards. Following are the major aspects which can potentially affect the score in both ways.

Keeping the credit utilisation ratio high
No matter whatever your credit limit is, it’s always recommended to keep your credit utilisation ratio around 30-50% of that limit. Credit utilisation is the ratio of your outstanding limit to the pre-set limit. Spending above this percentage can create a negative impact on your CIBIL score, making you seem credit hungry and vice versa.

Payment history has a dominant impact
It is instrumental for your credit score if you clear off your card dues on time. Late payments can hurt the ratings significantly lowering the same. Failing to pay bills within its due time even invite penalties and additional charges.

Moreover, you must avoid paying minimum amount due as it also lowers the CIBIL score. Paying off the total dues on your credit card every month is always advised to have a healthy rating.

Opting for easy EMI conversions
You may use your cards for many expensive purchases. Paying the total bill within the due date can cut down substantial amount from your monthly income. In such a case, you can convert the total amount due into easy EMIs. As you pay small debts on time, your CIBIL score will gradually increase.

The Bajaj Finserv RBL Bank SuperCard offers industry-first features. You can also get pre-approved credit card offers which saves your time with a simplified method.

Closing the old cards
You often consider closing an existing credit card after you pay off the dues. However, closing a card directly affect the overall credit history which you possess against the card.

Your credit utilisation ratio also goes up since you will have less credit to avail. So, avoid closing down the existing cards having a good credit history to maintain a healthy CIBIL rating.

Usage pattern
A lot depends on the usage pattern of your credit card when it comes to credit score. For instance, there will be a positive impact on your score if you use the cards for meeting recurring expenses like monthly utility bills.

However, going into debts due to the overuse of credit cards may hamper your CIBIL score if you indulge in overspending more often than not. Moreover, frequently converting those dues into EMIs will act as an inhibitor and, thus may deter your score.

Applying for many credit cards can affect your CIBIL score
Applying for multiple credit cards at a time or quite frequently hits your CIBIL score adversely. Lenders enquire credit bureaus about your financial habit whenever you submit an application. Every such enquiry later brings down your CIBIL score.

Therefore, multiple credit cards applications can significantly impact this rating, reflecting the same on your credit report. These details remain on the report for almost 24 months.

So, next time, you apply for any credit, the other lender may consider you credit hungry for this, eventually rejecting your application.

A credit card is, therefore, a valuable financial tool, and can boost your CIBIL score if utilised properly. You can maintain a sound credit report by being smart user of the card.

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