Most credit card critics believe that it is a tool that can lead to a debt trap in the long run. They fail to factor in the benefits offered by a credit card to users besides the financial aid. Contrary to the popular opinion of the credit card being a debt trap, it is a tool that can bring you out of debt fast and make you eligible for better credit terms. All you need to do is make your bill payments on time, it is that simple. Punctually meeting your credit card debt obligations can help you build a great credit history and boost your credit score. A majority of users are unaware of the credit score improvement benefits offered by the best credit cards. Read on to know more about credit scores and how they can be upgraded using a credit card.
A credit score can be simply explained as a quantitative summary of your credit history. It is a 3-digit score provided by the credit bureau. This is usually between 300 to 900 points; a higher credit score is considered better and vice versa. Most banking and non-banking financial institutions often take the credit score into account before lending any amount to borrowers. There are different factors from your credit history that influence your credit score. This includes the number of open accounts, total debt amount, repayment track record, etc. A credit score gives a broad idea of an individual’s creditworthiness in the market. A higher score indicates that the applicant is more creditworthy.
A credit card can be your best financial asset when you know how to use it. It can help you improve your credit score which will make you eligible for bigger loan amounts and favorable terms. Here are some effective tips to improve your credit score easily using a credit card.
Choosing the right type of credit card is the key to improving your credit score. The right credit card should offer you discounts and reward points that are best suited for your spending habits. There are plenty of credit cards available in the market, each with its pros and cons. You should consider different factors including annual fees, reward points, discounts, interest charges, etc. before applying for one. You should also refrain from getting more than one or two credit cards. A higher number of credit cards will increase your credit exposure.
Keeping a check over the credit utilization ratio is important to maintain a healthy credit score. So, what exactly is a credit utilization ratio? Well, it is the percentage of your total credit limit that is used on different transactions in a particular billing cycle. For example, if your credit card limit is INR 1,00,000 and you have spent INR 30,000 in a particular billing cycle, your credit utilization ratio is 30%. Ideally, your credit utilization ratio should be in the range of 20% to 30%, if you want to improve your credit score. You must avoid overspending through your credit cards to keep the ratio within the prescribed limits.
Planning your credit card expenses by forecasting your future needs and purchases can help you improve your credit score. It requires a good understanding of your billing cycle. Expenses within a billing cycle have to be paid before the due date, during the grace period. If you plan your expenses, you can defer some of the balance to the next billing cycle and easily repay the due amount. You must also factor in any big purchases that you will incur in the current cycle. This will help you manage things efficiently.
You must always try to get a credit card that offers a zero-percent interest feature on your purchases. Many a time, credit card companies offer an interest-free EMI option to finance big purchases. This can help you save a considerable amount of money on interest for big purchases. You won’t have to repay the entire amount instantly and can choose to defer the payment over a few months.
Credit card companies often have a great loyalty program in place to reward their loyal customers. You should always be on the lookout for promotional emails or messages to get a good deal on your next purchase. Mostly, you can expect to receive these emails during public holidays and festive occasions.
The most important thing that you must be mindful of is making your bill payments on time. Most credit card companies have a generous interest-free grace period. You must repay the outstanding balance within this period, before the due date. Late repayment negatively impacts your credit score. Always try your best to repay the entire outstanding balance in time.