A high CIBIL score like that of Priyasha Saluja is possible with responsible credit usage; here’s how
Aiming for a high CIBIL score is valuable, as it unlocks access to various financial advantages. In India, CIBIL scores span from 300 to 900, with higher scores reflecting improved creditworthiness.
Did you watch the third season of Shark Tank India wherein enthusiastic entrepreneurs from India are back to present their business ideas to the panel, hoping to secure investments?
The atmosphere is charged with excitement as both investors and budding entrepreneurs prepare to make the most of this brief opportunity, which lasts only a few minutes. One standout moment was Priyasha Saluja’s pitch for The Cinnamon Kitchen, where she impressed the investors by highlighting her impressive credit score. Her closing statement, “Main Paisaa Leke Deti Hoon Waapis,” translates to “I repay all my debts on time”.
Quest for a high credit score
Numerous individuals ponder the measures one needs to take to sustain a healthy credit profile. This concern is particularly relevant for credit card holders, individuals enticed by Buy Now Pay Later (BNPL) programs, or those relying on frequent loan applications to manage their debt.
Contrary to the misconception that credit cards contribute to long-term financial difficulties, they come with a variety of benefits that make them appealing financial instruments. Firstly, they grant access to a line of credit, enabling you to make purchases even when you don’t have the funds at hand. This can be advantageous for handling unforeseen expenses or spreading the cost of larger purchases over time.
Furthermore, numerous credit cards provide EMI options for significant purchases such as appliances, furniture, or travel packages. This allows you to distribute the expense over several months, facilitating better budget management.
Additionally, a multitude of credit cards feature rewards programs that offer cash back, points, or miles based on your expenditures. These rewards can be utilized for various advantages, including travel perks, merchandise, or statement credits. Moreover, many cards provide exclusive discounts and cashback opportunities at affiliated merchants.
Nevertheless, even though credit cards come with valuable advantages, they can turn into a double-edged sword if not handled responsibly. It is essential to be mindful of the potential drawbacks and use them judiciously.
Be credit conscious
Individuals grappling with a low credit score need not regret the habit of consistently relying on credit. Instead, prioritize timely payments. This simple action alone will guarantee the strength of your credit health. Begin by ensuring timely payment of your credit card bills, preferably in full; this stands as the most influential element in enhancing your credit score. Such punctual payment showcases responsible credit utilization to lenders, establishing a positive credit history and guiding you toward financial stability.
Considerable contemplation is necessary when applying for a credit card. Engaging in self-reflection and careful planning before the application is crucial. Pose the right questions to yourself, aiding in the selection of a card that aligns with your needs and steering clear of potential pitfalls. Below are essential questions to ponder:
- What are the main motivations behind my desire for a credit card? Am I seeking rewards, aiming to build credit, financing significant purchases, or simply seeking convenience?
- What are my spending patterns on a monthly/annual basis? In which categories do I allocate the most expenses, such as groceries, travel, dining, etc.?
- Do I require specific features like travel insurance, access to airport lounges, or extended warranties?
Having identified your credit card requirements, it’s now essential to turn your attention to when, where, why, and how you use them.
- What is a practical monthly spending limit I can afford on credit? Can I commit to paying off my balance entirely to steer clear of interest charges?
- Do I possess the discipline to handle credit responsibly and resist impulsive spending?
- Given a high credit limit, am I at risk of succumbing to the temptation of excessive card usage?
Requesting a credit card mirrors the process of making any other purchase. It involves evaluating products and services based on their fees, quality, and long-term utility. While some may view this task as tiresome and unproductive, exercising a bit of persistence in comparing features and benefits can spare you from unnecessary disappointment in the future. Check the following elements before finalizing your next credit card acquisition.
- What are the interest rates and charges linked to various cards? Are there annual fees, penalties for late payments, or fees for foreign transactions?
- What types of rewards programs do different cards provide? Do these rewards align with my spending habits and lifestyle?
- Are there any introductory offers or exclusive promotions currently accessible for specific cards?
Sustain a favourable credit card utilization ratio
A high CIBIL Score is not impossible. Ensuring a favourable credit card utilization ratio can help in enhancing and sustaining a healthy credit score. Here are some tips for achieving this:
- Keep it under 30%: Ideally, strive to maintain your credit card utilization ratio (the proportion of your credit limit you’re utilizing) below 30%. This demonstrates to lenders that you’re not overly dependent on credit and can handle your finances with responsibility.
- Clear your balance completely: The most effective approach to maintain a low utilization ratio is to pay off your credit card balance in full every month. This not only prevents accrued interest but also resets your utilization ratio to 0% by the upcoming statement date.
- Prioritize balance reduction strategically: If you have outstanding balances on multiple cards, focus on paying off the cards with the highest interest rates first. This strategy can minimize your overall interest costs and enhance your utilization ratio.
- Stay vigilant with your credit report: Regularly examine your credit report to monitor your utilization ratio and detect any errors that could impact your score.
- Strategically use your multiple cards: If you possess several cards, consider assigning them to different spending categories (groceries, travel, etc.) and pay off the balances in full each month. This approach can optimize your rewards while maintaining a low utilization ratio.
- Avoid reaching credit limits: Refrain from maxing out your credit cards, as this can significantly harm your credit score and convey financial instability to lenders.
- Exercise caution with annual fees: Some cards offer rewards programs but come with annual fees. Ensure that the benefits from the rewards outweigh the fees before applying for such cards.
Constructing a robust credit score requires dedication and effort, yet the long-term financial advantages make it worthwhile.
Priyasha Saluja’s proficiency in handling numbers and her commitment to repaying loans and debts contributed to her achievement of a high CIBIL score. While this might appear challenging for some and insurmountable for many, a meticulous approach to credit management, such as prudent credit card usage, can also assist in attaining this seemingly unreachable accomplishment.
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First Published:27 Jan 2024, 01:08 PM IST
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