Credit Cards Can Help you Build a Credit Score, But Know The Risks

People have long complained that credit cards lead to more ruin than even the devil. As long as you have the right documentation, getting a credit card is a piece of cake – but making them work for you is a much more challenging process. They can not only bury you under a perpetual mountain of debt, but they can work wonders on your financial health by positively impacting your credit score and improving your credit report.

These days, banks and financial institutions almost exclusively rely on CIBIL scores when deciding whether or not to issue loans and credit cards to borrowers. If you have no credit history or bad credit history, you have little chance of getting a loan from a lender.

The following are ways credit cards can help you build your credit score

Instead of using credit cards, use cash

Generally, people use credit cards to make large purchases, hoping to pay them off over time. If you cannot make your repayments on time, your CIBIL score can be negatively affected.

With this in mind, it is always prudent to budget responsibly and uses cash in the purchase event to reduce the risk of being burdened by a maxed-out credit card. As a result, you will keep your credit card usage to a minimum and build a track record of good financial management.

Pay your bills regularly with your credit card

If you regularly pay your internet bills, telephone bills, or utility bills, including water and electricity, with a credit card, this can help you build a strong credit history and improve your CIBIL score. The debt incurred for these expenses can be paid off quickly or within a short period, as they usually have a much lower cost than purchasing material goods.

Become accustomed to repaying your loans

It is still important to repay the minimum amount due on your credit card even if you cannot pay off the entire balance. By doing this, lenders will see that you don’t renege on payments, and you can be a good credit risk over the long term. Paying off your credit card debt as soon as possible will improve your CIBIL score considerably.

Always make a full payment whenever possible

Making only the bare minimum payment will maintain your account in good standing, but it will not save you any money on interest charges. Paying in whole by the due date, on the other hand, does. You also don’t want to fall into the habit of spending more money than you can afford to repay in the future.

Don’t exceed the credit card limit on your account

Your credit utilization ratio measures the link between the amount of credit you have available and the amount of credit you are now using. The amount of debt you owe on each of your best credit cards in comparison with the available credit limit on each account. You risk having your credit score lowered if you exceed 30% of your credit limit. As a result, don’t spend more than you can afford, regardless of how much money you have.

Check your credit score and report regularly

It’s critical to check your credit score and credit report frequently to ensure that you’re on the right track financially. Checking your credit reports regularly will assist you in identifying errors on your information and disputing them, which will aid in the improvement of your credit score.

Become an authorized user

When you are too young to receive a credit card (less than 18 years old) but wish to build your credit, you can obtain a credit card as an authorized user, which allows you to create your credit over time.  You can access someone else’s account by becoming an authorized user. That means you will be given a card linked to that person’s account, and you will be able to make transactions using their available credit limit. Even though the account holder is solely liable for payments, the account information will appear on your credit report as well. Being an authorized user will not help you develop credit as quickly as having your card will, but it is still beneficial.

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Bottom Line

To maintain a healthy credit score, you must use a credit card responsibly. To build a strong credit history and credit score, you can’t avoid taking out loans or borrowing money. As a result, customers who wish to establish credit may find it necessary to obtain a credit card at some point in the future. A secured credit card will serve the consumer until they can qualify for a standard credit card. Remember that while best credit cards might help you improve your credit score, you are never obligated to carry credit card debt to develop credit. Continue to keep an eye out for mistakes on your credit report, as well as take advantage of free credit score services to determine where you stand with the credit bureaus.

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