A GOOD credit score helps us establish our borrowing credibility in front of banks and lending institutions. If you have a good score, you have a better chance of getting your loan approved. Most often we forget the contribution of credit cards towards our credit score. Here’s how you can make the most of credit cards to improve your score:
- Make timely payments: Every time you delay in making timely payment, it adversely affects your credit score. Our advice is that you make full (or maximum, if not full) payment as it’ll help avoid unnecessary interest deductions. Moreover, delay in making payments on time is viewed negatively by lenders. You may opt to give standing instructions to your bank and sign up for electronic clearing services (ECS) so that you can clear-off your debts on time -even if it is comparatively a smaller amount.
- Close unused cards: If you don’t use a card, you’re not likely to keep it in your wallet, you’d keep it away in a cupboard. There are chances of the card getting misplaced or landing in wrong hands and being misused, thereby negatively impacting your credit score. Don’t risk it. Close the card if you’re sure of not using it.
- Limit the number of credit cards: Although there is no cap on the number of credit cards one can have, try not to get one at the drop of a hat! Before taking a new card, check whether you really need it and if the benefits offered are already present in your current cards. Ideally, three to five cards are more than enough. Anything more than this reflects poor financial management and high borrowing tendency.
- Track your balance: Crossing your credit limit can pull down your credit score even if you pay your bills in full. Keep a note of where you use your credit cards and for how much amount. Try to keep the usage below 50% of the credit line. This will help prevent your credit score from dipping.
Be wise when using credit cards!
By Naveen Kukreja, Managing Director, Paisabazaar
(First published in The Financial Chronicle on 6 Feb 2015)