How do credit cards play an important role in building a good CIBIL score?

TransUnion CIBIL is one of India’s most trusted and prominent credit information bureaus, providing credit details of individuals and assigning credit scores accordingly. CIBIL score thus essentially refers to this score, which is a 3-digit number ranging between 300 and 900. While considering loans for approval, financial institutions typically rely on this score to ascertain an applicant’s credit reliability.

A high CIBIL score enables a borrower to avail credit options more quickly, and at a lower interest rate, apart from other benefits. Usually, a score above 750 is considered to be good for such an evaluation. In this backdrop, if an individual is thinking about how to build a good CIBIL score, a credit card might just be the answer to it.

Ways in which credit card helps to build a credit score

Card transactions are reported to the credit bureaus by the issuers, whereby such information is further utilized for the calculation of the CIBIL score. While a credit card when used in a disciplined manner invariably plays an enabling role in building a good score, certain critical aspects contribute to such credit profile build-up -

Regular repayment within time

To calculate the CIBIL score, maximum weightage is given to credit repayment within the due date, among all other factors. Therefore, if repayments are made well within time, such a habit would go on to build one’s CIBIL score steadily.

One must thus never miss such payments. If repayment within the specified date is found to be putting too much stress on existing finances, a part of the bill should be converted into EMIs for affordability.

It can be a suitable method to repay your credit card debt. The benefit in this instance is that the CIBIL score is safeguarded from any adverse impact arising from non-payment, and for the same time, late payment fees or charges are not imposed.

Maintenance of credit utilization ratio

Credit utilization ratio refers to the percentage of available credit which has been utilized by an individual, in this case, a cardholder using the available credit limit. Exhausting the entire credit limit strains one’s repayment capacity, thus hurting the overall CIBIL score. Ideally, the ratio should be capped at 30% of the credit limit, whereby only an increase in credit limit should lead to a corresponding increase in utilization.

Further, some other essential credit habits one should utilize for score maintenance include the following.

Refrain from submitting multiple inquiries

When multiple card or loan applications are made, the lender seeks the credit report from the concerned bureaus for each application. Such inquiries reduce one’s CIBIL score. Hence, it is better to avoid multiple card or loan applications within a short time span.

With a high credit score, availing a premium credit card like the Bajaj Finserv RBL Bank SuperCard is easily done against a minimal joining fee and annual charges.

The concerned card issuer also extends pre-approved offers to simplify the application process, making it less time-consuming. Such benefits are available on a range of financial products such as personal loans, business loans, etc. You can check your pre-approved offer by merely entering your name and contact number.

Opt for secured cards

Many a time, card issuers do not consider an application from first-time users, that is, individuals without a credit history. Moreover, these card applications may also not be approved owing to the profile of employment, low income, etc. Such applicants can opt to avail of a secured credit card, which requires collateral such as fixed deposits. The credit limit herein proportionately corresponds to the collateral’s value.

Secured credit cards also carry similar features as the unsecured ones such as discounts, cashback, reward points, etc. Nevertheless, their access is limited to only those who can provide an asset as collateral.

Cardholders need to know that CIBIL score is not impacted by the credit card type, whether secured or unsecured. It is the transactions made through these cards which are reported to CIBIL. Hence, through planned spending and timely repayment, you can use a credit card to improve your credit score.