Thursday, 10 March 2016

Maximize Your Credit Score by Using Credit Cards Wisely


“With a credit card, come a great credit responsibility”
-          Anonymous

Often you must have read about what a menace a low credit score can be. Apart from its “dream shattering” effects it can lead to social embarrassments for you. You may even be declined a job offer due to a poor score. And, most importantly, it can dent your financial confidence. But, hey, don’t lose heart. We are here to help. This article will guide you in your quest to improve CIBIL score and maintain it.

The idea of working towards a better CIBIL score is no rocket science. Among the different ways that you can adopt to improve your score, one of the most effective and easy way is to use your credit card. It can take you to the summit of your credit score.

How dependable is a credit card?
A credit card can be your best friend if you know how to use it wisely. It can be used in your time of need, just like a good friend. In today’s age, it is highly unlikely to meet someone who does not have a credit card. As you may know, credit cards are plastic money with a predefined credit limit. You can spend it upto that limit at a point of sale, for online transactions or even withdraw cash through an ATM. It gives you instant credit which you can enjoy for a period of usually 30 to 45 days, depending upon your payment cycle. You can apply for a credit card through any of the banks.
Your existing score, average monthly income and repayment history is all that a bank will consider to determine the limit on your card. It varies from an individual to another. Please note, before you apply for a credit card, your existing score is considered in approving your application. With an unfavourable score you may be declined the opportunity of using a credit card. However, there is light at the end of the tunnel. You can apply for a secured credit card in such a case. Using this card with planned expenses and repayments you can enhance your score and then apply for a regular credit card.

How does it help me build my score?
When you are sent a bill with all the expenses you have made in a month, then these are what you can do:

1.       Pay the amount due on time: A late payment will not only attract a late payment fees, but it will also reflect poorly in your credit report and score. It will suggest that you are not a dependable credit user. Frequent missed payments, will have adverse effects on your score.

2.       Pay atleast the “Minimum Amount Due”:  By paying at least the minimum amount that is due before the due date, you can ensure that no late payments are mentioned in the report.

3.       Do not use the entire credit limit: Experts believe, using your limit in entirety shows you as a “spendthrift” and that you are building excessive credit on your account which you may not be able to handle in future. Do note, using the entire limit has no direct bearing on your score, but it does shed a negative light on you.

4.       Set Alarms or make use of reminders: We all carry smart phones these days. Setting alarms or reminders for your due payments will help you pay on time. Thereby, you have it all sorted and do not have to worry about any late payments.

5.       Set Auto Debit instructions on your salary/ savings account: This means, every month on the due date there will be an auto debit of the requisite amount from your account. Now, even if you do not have the time to make the payment, you can be assured, that you are well taken care of.

6.       Stop applying for too many credit cards: You can shortlist the credit cards on the basis of all benefits that suit you. Do not take credit cards to just fill up your wallet or to show off in your social circle. This is so because it will be evidence of your “credit hungry” behaviour.

7.       Don’t throw away your old cards: Keep your old cards with you just like you keep your old jeans. An old card proves that you are a seasoned player of the credit world and are aware of how to prudently use your credit.

Is there a flip side too?

Yes. Experts advise that you must aim to make the payments on your card in full. Often because with the help of a credit card we can leverage our monthly budget & we tend to exceed our means. When we are not able to pay the amount in full, the late fees and interest levied, together help build the outstanding into a huge amount that may become burdensome. All this will make future lenders wary of getting involved with you financially.

Also, when you decide to cut down on your credit cards, do make sure that it is reported to the banks as “paid in full” with no balance outstanding. A report of “settlement” will again shed a poor light on your account.

Don’t have too little cards. Just have an appropriate number where you can justify the usage of credit vis-à-vis the credit limit available to you.

Summary

Remember all credit information is reported to CIBIL every month. Your score and report mirrors your credit performance. A diligent behaviour will reflect in your report and score and tell prospective lenders about your credit responsible past. Be meticulous in your financial planning to achieve your economic goals.
Happy credit to you J



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