Boosting Your CIBIL Score Using Credit Cards: A Comprehensive Guide

In today’s financial landscape, maintaining a good credit score is crucial for securing loans and credit cards. One of the key factors that lenders consider while assessing your creditworthiness is your CIBIL score. This three-digit numeric summary of your credit history ranges from 300 to 900, with a score closer to 900 indicating a better credit rating.

Understanding the CIBIL Score

The CIBIL score, also known as a credit score, is derived using the credit history found in the CIBIL Report. It is based on past credit behavior, such as borrowing and repayment habits shared by banks and lenders with CIBIL on a regular basis. When you apply for a loan or a credit card, the lender checks your CIBIL score and report. If the CIBIL score is low, the bank may not even consider the application further. If the CIBIL score is high, the lender will look into the application and consider other details to determine if the applicant is credit-worthy.

How to Boost Your CIBIL Score Using Credit Cards

Boosting your CIBIL score is a gradual process that requires consistent effort. Here are some strategies that can help:

1. Set Reminders for Payment: Your repayment of outstanding debt can significantly impact your credit score. Delays in EMI payments can lower your credit score.
2. Maintain Older Credit Cards: If you have old credit cards, continue to maintain them as long as you can pay your bills in full, on time. This will help you build a solid and lengthy credit history.
3. Customize Your Credit Limit: Your credit utilization ratio has a significant impact on your credit score. The more you are able to restrict your credit usage as per the allotted limit, the better it is for your credit score.
4. Opt for a Longer Tenor When You Take a Loan: When borrowing a loan, try choosing a longer tenor for repayment. This will ensure that your EMI is low so that you can make payments on time.
5. Avoid Taking on Too Much Debt at One Time: The number of loans you take in a fixed period of time should be minimal. Repay one loan and then take another to keep your credit score from crashing.
6. Get Secured Credit Cards: Secured credit cards are the ones issued against FD and they don’t pull a hard inquiry on your CIBIL account. If you use your secured credit cards properly, you can expect a good rise in score within a year.
7. Regularly Pay Your Bills Using Your Credit Card: Using your credit card to regularly pay your internet bills, phone bills or utility bills like water and electricity, can help build a positive credit history and improve your CIBIL score.
8. Always Pay the Full Credit Card Bill: To improve your CIBIL score, always pay the full credit card bill and not just the minimum amount. Making full payments consistently helps you build a steady repayment history, and this boosts your score significantly.

Improving your CIBIL score is a gradual process and requires consistent effort. It’s important to monitor your credit behavior and make necessary adjustments when needed.

Factors Affecting Your CIBIL Score

Your CIBIL score is influenced by several factors:

1. Repayment History: Your repayment history has the biggest influence on your score. It is important to pay your credit card bills and loan EMIs on time every month.
2. Credit Utilization Ratio (CUR): Your CUR refers to the percentage of credit you have utilized compared to the credit limit available to you. You should ideally maintain a CUR below 30%.
3. Credit Age: Credit age is the total number of active credit history you have. A longer credit history allows for greater trust in you by the lender.
4. Number of Enquiries: Whenever you apply for a credit product, the lender checks your credit score. Too many hard credit enquiries can negatively affect your credit score.
5. Credit Mix: A good mix of credit, including credit cards, secured, and unsecured loans have a positive impact on your credit score.
6. Status of Old Loans: Any old loans which have the status of ‘settled’ or are not closed may have a negative impact on your CIBIL score.
7. Errors in Your Credit Report: Sometimes credit companies or your lenders might make errors while reporting your payments or your loan status. These may affect your credit score negatively.

Managing Your Credit Utilization Ratio

One of the key factors affecting your CIBIL score is your credit utilization ratio. A good credit utilization ratio is generally considered to be below 30%. This means if you have a total credit limit of, say, Rs.1,00,000 across all your credit cards, you should ideally keep your outstanding balances under Rs.30,000.

Here are some strategies to reduce your credit utilization ratio:

1. Pay Down Your Balances: The most straightforward way to lower your credit utilization ratio is to pay down the balances on your credit cards.
2. Decrease Your Spending: Try to reduce the amount you charge to your credit cards. This can help lower your credit utilization ratio over time.
3. Increase Your Credit Limit: You can request a credit limit increase from your credit card issuer. If approved, this will increase your total available credit and lower your credit utilization ratio.
4. Open a New Credit Card: Opening a new credit card will increase your total available credit. However, this should be done cautiously as applying for multiple new lines of credit in a short period can negatively impact your credit score.
5. Don’t Close Old Cards: Even if you don’t use them often, keep your old credit cards open. Closing a credit card decreases your available credit and can increase your credit utilization ratio.
6. Redistribute Your Debt: If you have multiple credit cards, try to maintain a balance on each one that keeps the utilization rate below 30%.
7. Pay Off Your Credit Card Balances with a Personal Loan: Personal loans are installment loans, which are not included in the credit utilization ratio calculation. Therefore, paying off your credit card balances with a personal loan can lower your credit utilization ratio.

Remember, it’s important to monitor your credit card balances and aim to keep your utilization as low as possible. Also, these changes won’t reflect immediately on your credit score. It may take one to two billing cycles for your payments to be reported and your credit utilization ratio to be recalculated.

In conclusion, maintaining a good CIBIL score is crucial for securing loans and credit cards. By understanding the factors that affect your CIBIL score and managing them effectively, you can ensure that your creditworthiness is always at its best.