How to build credit score with a credit card
Credit cards are infamous for taking you down the unending road of debt. Procuring credit cards has become easier than ever – as long as you have the required documents – but using credit cards and build credit score in a way that doesn’t bite you and is advantageous for you is still something that you need to work your way around.
If not used properly, credit cards have the power to put you into heaps of debt and also damage your financial health in the long run, negatively impacting your CIBIL score and such. These scores are important if you’re looking to take loans from banks, and so you need to know how to use your credit cards to build good credit scores. Let’s see how you can do that and not fall into the debt trap of credit cards!
- Be strategic while paying off balances and build credit score
The portion of the credit that you’ve been given to use is known as credit utilization. As a rule of thumb, you should try and use not more than 30% of your total utilization limit. The lower you stay, the better your credit score. It has been observed that people that score high in their credit scores generally tend to use less than 8% of their credit limit.
To ensure that you’re being strategic with your spending and are not overshooting the limit, you can view your credit score profiles regularly and track your utilization. All you want to do is ensure that your balance is low when your card is being reported to the bureaus. That is what goes into calculating your final credit score, and if your balance is low, you will be scored higher.
Another thing to note is that if your card limit increases but your balance remains the same, it lowers your overall credit utilization percentage, which improves your overall credit score. So, if your income has increased and you have more limits while having the same expenses, you have a good shot at building a good credit score.
- Avoid multiple credit card applications in a short span of time
Having multiple card applications in a short span of time reduces your credit score by a few points. Every time you make an application, your card issuer fetches your credit report in order to gauge your trustworthiness. Such a hard inquiry gets added to your final report.
If you make multiple applications within a short span of time, you tend to risk losing your credit score in the process. So, to ensure that your credits are healthy and the score is well maintained, try to use limited credit card applications within a span of time.
- Close your older cards with care
While calculating your final credit score, credit bureaus consider your credit facilities’ average age. This includes all of your credit cards and loans. As a result of this, it is advised that you should not close your older cards, as it will lead to a reduced average length of your credit facilities – which will directly negatively impact your credit score.
Further, closing your credit card can also have adverse effects on your limit. And, if the limit reduces and your utilization increases, you are back to being at the risk of losing some important credit scores.
In conclusion, maintaining a healthy credit score is a must if you want to be in the good books of banks and financial institutions.
The above-discussed techniques can be used to ensure that you stay careful with your credit card usage and keep your score healthy. But keep in mind that this is not an exhaustive list. Numerous other things can be done, too, to build a credit score with a credit card. These include simple things like paying your bills on time, checking your CIBIL score regularly, managing a credit mix, etc.
The idea is to be calculated and careful with your credit usage, and the rest will fall in place on their own!
If you are new to credit, it is recommended that you opt for a payment app like slice that doesn’t require a high CIBIL score or a high income.
With instant cashbacks on every transaction and specially curated list of brands to shop from, you are unlikely to overspend on unnecessary products with slice.
Visit Slice Homepage to learn about eligibility requirements. You can also sign up for your slice card via the slice app (Google Play for Android users, App Store for Apple users).
