How to Improve Your Credit Score Using a Credit Card?

Maintaining a good credit score is a crucial part of your financial health. This is because it directly impacts your ability to access credit options like home loans, car loans, and personal loans, often at more favourable interest rates. A strong credit score reflects your reliability as a borrower, while a poor score can limit your financial opportunities. One of the simplest ways to build or improve your credit score is by using a credit card. In this article, we will look at how to improve your credit score by using a credit card efficiently. 

Apply for a credit card 

The first step in improving your credit score is to get a credit card for your personal use if you don’t already have one. When looking for a new credit card, make sure you look for one that has minimal or no annual fee, with relatively low interest rates. However, it might be difficult to get approved for a credit card if you have no credit history or a poor credit score. 

In that case, you may have to get a secured credit card. Many banks offer secured credit cards against a fixed deposit, and thus your fixed deposit amount becomes your credit limit. By using your credit card wisely, you can build up your credit score over time and qualify for new unsecured cards that will no longer require any type of deposit. 

If you want to get your first credit card, consider looking at IndusInd Bank’s Instant Credit Cards with online application approvals. Some highlights of IndusInd Bank’s Credit Cards include: 

• Completely online process with a video KYC
• Reward points on everyday spending
• Exclusive discounts and travel-related offers 
• Flexible repayment options like no-cost EMIs
• A range of different credit cards with unique benefits to choose from

How to improve your credit score using a credit card 

If you have recently secured a credit card or have an existing card, here are some valuable tips on how to improve your credit score using a credit card:

Keep your credit utilisation on the lower side

One of the most crucial factors that affects your credit score is your credit utilisation rate. The credit utilisation ratio refers to the amount of credit that you are actively using compared to the total credit limit available to you. Financial experts recommend keeping your credit utilisation at or below 30% of your total credit limit. 

For example, if you have a credit limit of ₹20,000 on your credit card, then you should ideally use only around ₹6,000 from your total limit. This practice helps improve your credit score in the long run. In case you end up using 80-90% or more of your credit limit frequently, it may have an adverse impact on your credit score. 

Pay credit card bills on time 

Other than maintaining a good credit utilisation rate, it is also equally important to pay your credit card bill before the due date. Even a single missed payment can impact your credit score negatively and take months to recover. 

Also, the missed payment record will remain on your credit history for many years. To ensure you do not miss any payments, you can set up automatic bill payments for your credit card so that the bill amount gets deducted on a pre-decided date before the bill is due. 

Increase your credit limit

Another way to reduce your credit utilisation ratio is by increasing your credit limit while keeping your spending the same. You can ask your credit card issuer to increase the credit limit after a few months of using your card. 

Many any credit card providers will automatically increase your credit limit after around 6-12 months of responsible usage. Alternatively, you can consider applying for a second credit card if your credit score has improved, to increase your total credit limit and reduce your utilisation ratio. 

Use your credit card frequently 

Consistently using your credit card for everyday purchases helps you save out money. For this purpose, choose a credit card that offers a range of benefits. 

For instance, by regularly using the IndusInd Bank Platinum RuPay Credit Card, you enjoy the benefits of earning two reward points for every ₹100 spent on UPI transactions and one reward point for every ₹100 spent on non-UPI transactions. You also get a 1% fuel surcharge waiver at any petrol pump in the country.  

To maximise these benefits, ensure you pay off your balance in full each month. This practice not only helps you avoid interest charges but also showcases your ability to manage credit responsibly, contributing to an improved credit score.

Avoid closing older credit cards

If you have a credit card that you have been using for a long time, avoid closing your card. Your credit history also plays a key role in maintaining a good credit score. If the old credit card you have been using for many years is discontinued, your credit history will also be reduced significantly. 

Frequently monitor your credit report

It is also a good idea to go through your credit report every few months to check for any changes in your credit score. In rare cases, banks or financial institutions may erroneously mark missing payments or defaults. If you notice your credit score dropping because of any error or fraudulent activity, get in touch with the bank to resolve the issue as soon as possible. 

Key takeaways

While a credit card can be a powerful financial tool to build up credit and use in times of emergencies, it can also prove to be harmful when used carelessly. Credit cards have very high interest rates, so delaying your payments can cost you dearly, not to mention hurt your credit score. 

Also, irresponsible credit card usage can lead to financial imbalance and a poor credit score will disqualify you from any loans you may require in the future. So, ensure that you pay your bills on time, keep your credit utilisation under 30%, and avoid unnecessary spending to maintain a good credit score and continue getting the benefits of using your card.