What are the Effects of Credit Cards on Your CIBIL Score?

CIBIL Score - Bajaj Finserv

Credit cards are one among the versatile financial products in India allowing users with maximum financial freedom. Besides providing access to instant credit, these payment tools come with a host of utilities and benefits. A significant perk of using a credit card is to improve credit score strategically.

However, these payment cards are like double-edged swords, which can make or break your credit profile. Using them responsibly is crucial to maintain and increase CIBIL score whereas not doing so will decrease the score and leave your in considerable financial stress. Remember that every activity performed with a credit card impacts your credit profile. Not possessing one also affects the credit profile negatively.

Understanding CIBIL score

Credit information bureaus in India collect financial information of individuals from various organisations. Those details are recorded in credit reports and help create the 3-digit credit score signifying an individual’s creditworthiness. CIBIL score is defined on a scale of 300 to 900, where 750 is considered as the qualifying rating for a financial product.

Some of the factors influencing the CIBIL score are –

  • Payment history
  • Credit limit
  • Account status
  • Credit card balance, etc.

You should learn to use a credit card responsibly to increase your credit score, based on these factors.

Effects of credit cards on credit score     

These payment cards are an excellent tool to improve credit score and strengthen the profile.

  • On-time bill payment

Issuing companies generate credit card statements containing all the transaction and other relevant details. Paying off this bill within the due date every month significantly improves CIBIL score. Know how to repay your card debt so that you don’t default on the same.

  • Paying the total due amount

Credit card statements come with two amounts – minimum amount due and total amount due. Try to pay the total amount due always for two primary reasons –

  • Improving the CIBIL score
  • Avoiding unnecessary interests on the outstanding bill

Pay the minimum due amount only when you have insufficient cash for the total billed charges.

  • Credit utilisation ratio

Credit utilisation ratio refers to the amount you utilise from the total credit limit at a given time. Keeping the ratio below 30% to 50% signifies that you use the card responsibly and are not a credit-hungry individual. A lower credit utilisation ratio, thus, increases the score.

How can credit cards negatively impact the score?

  • Not possessing a credit card can affect the profile negatively.
  • Avoid closing your old credit cards if any.
  • Do not apply for multiple credit cards at a time.
  • Do not default in paying the bill in any month.

Opt for one of the best variants, the Bajaj Credit Card, to enjoy a plethora of features and benefits.

Bajaj Finserv, as one of the trustworthy lenders in India, also brings their pre-approved offers exclusively for existing customers. Not only do these offers simplify the loan availing procedure, but they also reduce the time-consumed. Such schemes are valid for credit cards along with other secured and unsecured advances like business loans, personal loans, home loans, etc. Check out your pre-approved offer by providing a few specific details. 

Using credit cards not only help improve credit score, but also save considerably on various transactions. Accumulate huge reward points and redeem those for cashbacks, discounts, vouchers, etc. to make your purchase more affordable.