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Explained: How to improve your CIBIL score using credit cards?

An individual’s CIBIL score or credit score plays an important role in the loan application process; hence, it is necessary to maintain a good credit score.

A high score represents creditworthiness and can get the individual better and quicker loans, while a lower score makes the individual a risky borrower and can impact their chance for loan approval.

CIBIL scores depend on the individual’s credit history and the credit card can be used to boost the credit score.

Increasing use of credit card

Credit cards are increasingly becoming a tool for meeting short-term financial goals. According to the data released by the RBI for March 2022, credit card users spend Rs 14,500 per month on average compared to Rs 700 debit card spends per month.

While the credit card has its advantages, there are certain demerits too. For instance, it is advisable to maintain a credit utilisation ratio of 30 percent of the credit card limit as it would otherwise make the user look credit hungry and have a negative impact on their CIBIL score, Business Insider reported.

How to use credit card to improve score?

There are many ways a user can utilise the credit card to get a good CIBIL score. This is because these cards are also a credit instrument and their judicious use can add to the individual’s credit exposure and mix. Here’s a look at some of the measures.

Choose wisely: It is better to choose a credit card that best suits the individual’s purchasing habits than to go for the one with special offers. When banks give special offers, they usually lead to a credit application, which will require the issuer to make a hard inquiry into the individual’s CIBIL report. Hard inquiries have a negative impact on the CIBIL score and lower it.

Pay bills on time: The credit card issuer allows the individual to make payment of either the minimum amount or the entire outstanding amount due within a specific payment window. It is best to pay the full credit card bill instead of the minimum amount to improve the CIBIL score. An individual who repays full credit card bills will build a steady repayment history that will boost the CIBIL score significantly.

Maintain older cards: As long as the individual can pay the bills in full and on time, he or she can continue using older credit cards. Older cards give the individual a lengthy and sold credit history that bears a positive impact on the CIBIL score.

Don’t settle at a go: Sometimes, individuals approach banks for a sweetened deal to settle their credit card outstanding. However, even though banks entertain such requests, such settlements negatively impact the credit score as it shows that the individual has not paid his dues in full. Suppose the individual does settle the outstanding with the credit card company. In that case, it is advisable to convert the status from ‘settled’ to ‘closed.’ To convert to the closed status, the individual and the credit card company would have to agree at a mutually acceptable amount for settlement.

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