3 hidden credit card benefits you might be missing

When applying for a credit card in the country through any lending institution, it's essential for you to look beyond just the convenience of cashless transactions.

One of the key advantages of owning a credit card is the ability to access short term credit without paying interest, if used in a sensible manner. But that’s not all. Today’s credit cards come packed with attractive features like cashback offers, reward points, complimentary lounge access, and tools to help improve your credit score.

For example, if your credit card provides three reward points for every ₹100 spent, then you can easily accumulate 300 points by spending ₹10,000. These points can later be redeemed for flight tickets, hotel bookings, and other exciting deals.

Furthermore, responsible usage of your credit card helps build a strong credit score over time and keeps your credit history intact. To achieve this, you should always keep your credit utilisation ratio (CUR) below the ideal 30% mark, this simply means, using only ₹30,000 of your ₹1,00,000 credit limit to maintain a healthy credit profile or just 30% of your total permitted credit limit. So that you are never flagged for overdependence on credit.

Credit card benefits: 3 reasons to use one smartly

I. Cashback and rewards: Several credit cards give points, miles, and cashback on purchases. These credit card rewards can be later redeemed for various purposes such as travel, shopping, or statement credits, thus giving you a discount or added value on shopping.

II. Miscellaneous services: Credit cards also provide added protections which include extended warranties, theft and damage coverage, or return protection on the eligible purchases. Some also offer perks like airport lounge access, travel insurance, or concierge services.

III. Building of credit score: Using a credit card responsibly (such as paying on time and keeping your credit utilisation low) helps build a strong credit history and improve your credit score. This can lead to better loan terms and increased financial trustworthiness.

Therefore, credit cards can go a long way to help you in building a strong credit profile and a high credit score. A credit score of over 750 is considered reputable by lending institutions.

Top 5 actionables to improve your credit score

1. Pay credit card bills on time: Timely payments are the most critical factor in building and maintaining a strong credit score. A strong credit score boosts chances of seamless loan approvals in the future. 
2. Limit credit usage: Keep your credit utilisation ratio below 30% to demonstrate responsible borrowing behaviour. This means on a credit limit of ₹1,00,000 never use more than ₹30,000. 
3. Diversify credit types: Maintain a healthy mix of secured (like home loans) and unsecured (like credit cards) credit. This will showcase your repayment credibility. 
4. Use credit consistently: Regular, moderate use of your credit card helps generate data for a positive credit history. This goes a long way in helping borrowers secure personal loans and credit cards smoothly in the future.
5. Keep old accounts open: The longer your credit history, the better your score, hence avoid closing long standing cards especially if they do not have any annual expenses. 

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Disclaimer: Mint has a tie-up with fintechs for providing credit, you will need to share your information if you apply. These tie-ups do not influence our editorial content. This article only intends to educate and spread awareness about credit needs like loans, credit cards and credit score. Mint does not promote or encourage taking credit as it comes with a set of risks such as high interest rates, hidden charges, etc. We advise investors to discuss with certified experts before taking any credit.