Tips to use your credit card wisely and build a good credit score
Having a credit card in your wallet has multiple advantages. Not only does it help with funds in an emergency, but also aids in building a healthy credit score, highly essential while availing loans. However, you need to be prudent with your credit card usage as it has a direct impact on your credit score. This article outlines some simple ways to do so.
Borrow an amount that you can repay easily
Every credit card comes with a credit limit from which you can borrow any amount as and when required. There’s a stipulated time frame within which you need to repay the borrowed amount, following which the limit is reset. It’s essential to borrow an amount that you can repay without difficulty, on time. This will help you build a good score.
Note that it’s not always necessary to borrow the maximum limit offered by the card. For instance, if your card has an upper limit of Rs.50,000, you don’t need to utilise this amount fully, unless absolutely necessary.
Remember that credit bureaus, while calculating your score, closely look at how you are utilising your credit. Keep your credit utilisation ratio to 10-40% of the credit limit for a healthy score.
Avoid withdrawing money from ATMs using a credit card
Withdrawing money from ATMs using a credit card is vastly different from a debit card. When you withdraw money using your credit card, you don’t get the interest-free period as against using your card at a merchant outlet using a point of sale (POS) terminal. Interest is levied from the first day along with ATM transaction and service charges. All of these increase the final payable amount manifold, failing payment of which can severely dent your credit score.
Hence, it’s essential to avoid withdrawing money from ATMs using credit cards. However, new-age cards such as the Bajaj Finserv RBL Bank SuperCard allows interest-free cash withdrawal from ATMs for up to 50 days. Only a 2.5% processing fee is charged. It also helps in availing an emergency interest-free personal loan to get cash up to 90 days, which can be paid in 3 easy EMIs.
Opt for card with a lower limit initially
Financially, it’s prudent to start your credit card journey with an entry-level card that has a lower limit compared to higher-level cards such as platinum cards. So, initially, apply for a credit card with a lower limit. A lower limit on your card keeps your borrowing amount low and stems frivolous spending, which helps in easy repayment. Once you start repaying the outstanding amount, it helps you build a healthy credit score.
Once you build a good score, the card issuing company will slowly raise the limit, having faith in your repayment abilities. You can also apply for a new card that offers a higher limit.
Pay the maximum possible outstanding amount
Ideally, you should pay the entire outstanding amount of your credit card within the stipulated time, some users just pay the minimum amount to avoid penalties. This habit on a regular basis may severely affect your credit score because the interest rate on the unpaid amount is high. Hence, make sure you pay the maximum possible outstanding amount within the stipulated time.
With these ways, not only you can utilise your credit card wisely, but also build a score that eases your borrowing exercise while availing big-ticket loans in the future.
