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Business News/ Brand Stories / 4 important things to know about credit card use that impacts your CIBIL score
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4 important things to know about credit card use that impacts your CIBIL score

It is important to understand the parameters associated with credit cards that impact your credit score. Here is an overview of how credit card usage impacts your CIBIL score

Your score changes based on your usage and credit management habits.Premium
Your score changes based on your usage and credit management habits.

Your credit score is a salient feature of your financial profile as it reflects your past dealings with credit. In India, your credit score may be assigned by various credit rating agencies, and a common one to know is the TransUnion CIBIL. This agency assigns your CIBIL score, and lenders often consult your CIBIL score and report to assess your creditworthiness. This is why it is important to do a CIBIL score check frequently and stay informed about any changes that occur. Most commonly, you will notice monthly changes to your score if you use your credit cards often.

Remember, your score changes based on your usage and credit management habits. This is particularly true when it comes to credit card usage, as there are several factors that can both negatively and positively influence your score. It is important to understand the parameters associated with credit cards that impact your credit score. Here is an overview of how credit card usage impacts your CIBIL score.

Utilising too much of the assigned credit hurts your score

While extending a credit card, the creditor will assign a limit to the card. This credit limit depends on your repayment ability and other factors, which can vary among different credit-lending institutions. While you can use the entire limit, it is important that you do not do this as it increases your credit utilisation ratio. This ratio influences your CIBIL score, as it is recommended that you utilise only up to 30% of the total credit limit.

So, if you have a credit card with a Rs. 1 lakh limit, do not use more than Rs. 30,000 at any given point. Utilising a high sum will cause your score to dip, until you get the ratio below the acceptable mark. Moreover, it shows a high reliance on credit and such behaviour isn’t appreciated by lenders.

Paying just the minimum amount can hurt your credit score

Lenders assess your credit behaviour by checking the monthly income and how you have handled previous credit. It provides them with an idea of your creditworthiness. The best way to maintain a good record is to pay your credit bills in full, which has a high impact on your credit score. This saves you from paying the applicable interest rates and lowers the total borrowing cost.

For example, if you pay only the minimum amount every month, the remaining balance adds up to next month’s credit bill. Here, the creditor charges a certain interest amount on the payable due bill. This can lead to defaults, which will lower your CIBIL score. To avoid this, pay the entire outstanding amount on every billing cycle.

Maintaining a credit card for years improves your score

You may think of closing your old credit cards when they are left unused for a long time. Instead, using them is one of the effective ways of improving your credit score. The age of credit is a parameter that contributes to your CIBIL score. It indicates how you have managed the account over the years. The old credit cards have a high credit age and usually have a long track record of payments. This helps to build a solid credit history that boosts your CIBIL score the longer you have them active.

Having too many credit cards lowers your credit score

Managing multiple credit cards simultaneously can burden your financial standing. it can also appear as credit-hungry behaviour, especially when multiple hard enquiries are present in your credit history. Ideally, you should have just a few credit cards and pay your monthly credit dues comfortably. Run a regular CIBIL score check and assess your credit report to monitor your expenses. Maintain a clean record without any discrepancies that can help you boost your CIBIL score.

Assess these factors to understand how to improve CIBIL score and maintain your creditworthiness effectively. Note that a strong CIBIL score offers a high chance of getting better loan offers with low-interest rates, and flexible tenor options with higher sanctions. To avail of these benefits, good credit health is necessary, which comes with disciplined financial habits. Doing a regular CIBIL score check is one of the essential habits that can help you evaluate your creditworthiness.

Here, digital provisions like the one offered by Bajaj Finserv allow you to do a free CIBIL score check any time of the year. Register with your PAN number and get access to your CIBIL score with ease. The service also provides a customised Credit Health Report that offers insights into your credit decisions.

Disclaimer: This article is a paid publication and does not have journalistic/editorial involvement of Hindustan Times. Hindustan Times does not endorse/subscribe to the content(s) of the article/advertisement and/or view(s) expressed herein. Hindustan Times shall not in any manner, be responsible and/or liable in any manner whatsoever for all that is stated in the article and/or also with regard to the view(s), opinion(s), announcement(s), declaration(s), affirmation(s) etc., stated/featured in the same.

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Published: 12 Sep 2022, 05:26 PM IST
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