What is the Best Way to Use Credit Cards to Increase Your Credit Score?

Credit cards are increasingly becoming popular in India owing to the plethora of benefits and conveniences they offer. However if not used wisely, a credit card can impact your credit score badly and you may face a problem while applying for loans in future. To help you use your credit cards in the best way possible and maintain a good credit score, we’ve enlisted some of the important things that you should keep in mind:-

1. Make full payments on time: Always pay your credit card EMIs on time and do make a full payment every time no matter what. This simple practice will benefit you in the long run. Not only it will improve your credit score but banks will find you an eligible borrower.

2. Stay below your credit card limit: Just because a credit card gives you the convenience to spend as per your wish, doesn’t mean you’ll overspend and exhaust your credit card limit. Your bank will charge a fee for it and increase your interest to a higher penalty rate. To avoid this, it is better you use your credit card wisely. 

3. Keep a track of your spending: Always keep track of your spending so that you can have a clear idea of how much you have spent. This simple practice will keep your expenses in control and you will never be worried about paying higher EMIs that are out of your budget.

4. Set a sensible credit limit: Your credit limit should be an amount that you can easily repay (neither too less nor too high) and one that won't tempt you to spend more than you can afford. You can also ask the bank to decrease or increase your credit card limit anytime you want depending on your budget.

5. Check your credit card statement regularly: To keep a track of your monthly expenses done using credit card HDFC or any other, you should check your credit card statement carefully. The best way to do this is by keeping all of your credit card receipts each month, and tick them off against the charges on your credit card statement. This will also help you check that you have been charged the right amount and that you have not been charged for anything you did not buy. 

6. Close your credit card properly: There's more to closing a credit card account than just stop using it. Banks have fixed certain criteria to cancel a credit card that you need to follow.

7. Treat your credit card like a debit card: While spending from a debit card you think twice because it’s your hard-earned money that you have been saving for long. Develop the same feeling for your credit card as well. The expenses you make from it will be paid by you only. So think sensibly and spend accordingly.

8. Use store card wisely: Retailers offer good discounts, cash back offers and other exclusive offers on different credit cards HDFC, ICICI, SBI, etc. But before you get swayed away from such tempting deals, you must think twice and only purchase those items or costumes that seem important to you. Also check the terms and conditions carefully to make sure any potential savings you might earn won't be eaten away by fees and charges.

The Bottom Line: These are quite a few significant factors that you must keep in mind to use your credit card wisely. One word of advice: Never take out cash advance from your credit card. It may help you in crisis but with time you’ll end up accumulating more debt at higher interest rate. Instead, increase your savings buffer that will help you easily sail through life's rainy days so you don't have to rely on your credit card. To apply for credit card from HDFC or any other bank, you can visit the official banks website.

How To Build A Sound Credit History From The Scratch?

What is that one issue that almost everyone faces during their first job hunt? Every company wants to hire someone with prior experience but how will one get experience if no one is ready to hire a fresher? Building a credit history is similar. If you need a loan, then the bank needs your credit history but how one can establish a credit history if he/she has not lend money till now? It is a vicious circle.

Even in this vicious circle, there are few loopholes. This way, you can take the first step into the world of credits. However, it is always advisable for the first time credit builders to look for available options, take their time, understand the details and then decide the way of starting the credit history. 

For those who are wondering that having a zero credit history is good? Well, not really! Banks and financial institutions will check your credit score as soon as you apply for any loan (especially unsecured loans). In case, you have zero credit score, then they might be hesitant to lend you money as they are not sure whether you will be able to pay the money on time. That’s why, having a good credit history and high credit score is important for anyone to get a loan easily and at considerate rate of interest.

Ways To Build A Sound Credit History

For the first time credit builders, following options are available that will help you create a sound credit history:

Apply For A Credit Card

Majority of people start their credit history by taking a credit card. Many banks offer credit cards against your fixed deposits. Since, your credit card limit is secured by the fixed deposit amount, the bank does not need your credit history to approve such cards. Start using this card and pay the bills on time in order to create and maintain a healthy credit history. Once you build one, you can then apply for unsecured credit card or loans. Other than paying bills on time, make sure you utilize available credit as low as possible. It is recommended to use less than 30% of the available credit in order to have a good credit score. 

Get a Joint Credit Card

In case you are unable to get a credit card of your own, you can become an authorized user on someone else's account like your parents or spouse.

Take Small Loans

Since you don't have any credit history, you might not qualify for large loans. However, you can apply for small loans given that you have a suitable and constant income. Once you take this loan, ensure that you make loan repayment on time and develop a good credit history.

Consider A Guarantor

If you are in financial crisis and need a loan urgently, then you can get a loan using a guarantor with good credit history. Ensure that after you take this loan, repay it on time or it might have a negative impact of yours and the guarantor's credit score. 

What To Do Next?

Once you take a step ahead in building your credit history, make sure that you build a healthy one. Here are some of the best practices that can help you maintain a good credit score

• Pay credit card bill and loan installments on time
  
  
• Maintain a good credit utilization ratio. (use 30% or less of your available credit)
  
  
• Do not apply for too many credit card or loans in a short amount of time.
  
  
• Get your credit score and report from CIBIL or online marketplaces for free just to keep a check on it.

How to Correct CIBIL Report Errors?

You must be aware of the fact that your credit score plays a vital role in getting you a loan from banks at considerable rate of interest. Your credit report from CIBIL defines your credit worthiness. In other words, this 3 digit score conveys whether you will be able to repay the loan amount on time or not. However, many times the loan application gets rejected even after having good financial history. Among the many reasons of rejection of loan application by banks is discrepancy or errors in your credit report. It might be wrong personal details, lack of updated information or mixing up of information. In case of incorrect credit report you don't need to panic. You can get those mistakes corrected by CIBIL easily.

Before we discuss how the rectification process of CIBIL report works, let’s understand why these errors occur. Banks and other money-lenders submit information to CIBIL and they collate all those information into a single credit report under your name and other personal details. There are chances that due to human error, incorrect or wrong information is submitted to CIBIL. 

Usually, the following types of errors have been found in the report.

Incorrect personal details like name, date of birth, address, gender, contact information, passport/voter ID information, pin code, etc. Even in case of misspelled name, one should get that corrected as soon as possible. For example, if a name Ayesha Thakur has been misspelled as Aisha Thakur; and someone named Aisha Thakur lends money but is unable to repay, it might affect your report as well. To avoid any such mistakes, make sure that you check all the information that you submit while applying for the loan. In case any changes, update your loan provider about the same.

Incorrect balance or amount overdue that implies that you have more debt that the actual overdue amount. And that you are unable to service your existing loan obligations. This can be viewed negatively by bank and money-lenders and thus, affect your chances of getting a loan at optimum interest rates.

Ownership of unknown debts, such as credit cards, loans or other debt instruments, that were not sought by you. This might be a case of identity theft and one should inform about this ASAP.

How to Correct Errors in CIBIL Report?

Once you find any error in the report, don’t panic. Rectifying errors in your CIBIL report is an easy process. All you have to do is follow these steps:

1. Fill in the CIBIL Online Dispute Resolution Form available at https://www.cibil.com/dispute/. If you are CIBIL member, then you can login to your MYCIBIL account to raise an online dispute.
2. Enter all your personal details accurately in the form. One more information called "Control Number" is to be filled in. This Control Number is a unique 9 digit number found on the right side of your CIBIL report.
3. Once you submit these details, a Dispute ID will be sent to your email ID which will be used for future references. 
4. After the submission of the dispute form, CIBIL will verify the data with the bank or the financial institution. 
5. In case the loan provider confirms about any error, then it will provide CIBIL with the correct data and it is the duty of CIBIL to share an updated report with you.

This process might take up to 30 days. Updates via emails will be sent by CIBIL on your registered email ID. Remember that CIBIL will make any changes in the report only after the custodian of information received from the loan lenders.

Regularly Check Your Credit Report for Last Minute Disputes

It is always recommended to check your credit report even if you don’t require any loan. This is because you can check for any errors (if any) and get them corrected on time. This way, in case of financial emergency, you can get loan easily.

How can I see my credit track record in CIBIL?

The 3 digit numeric summary of the entire credit history of a person is known as the credit score or CIBIL score in India. The credit score is calculated based on the information recorded in a person’s Credit Information Report and ranges normally between 300 and 900.

Why it is important to know your CIBIL score?

A person’s CIBIL score plays a major role in the application and approval procedure of all types of loans. If your CIBIL score is not satisfactory, you will not be considered eligible for most loans. Once you fill out and submit your loan application form, the bank will first look at your credit score and credit report. If your credit history is not good and you have a low credit score then the bank can reject your application outright. The higher the CIBIL score, the better are your chances of getting a loan approval. However, CIBIL as an institution does not play any role in the approval of your loan as the authority to make this decision lies solely with the bank.

What can affect your CIBIL score?

• Making late payments on credit cards or delaying/defaulting EMIs on a regular basis can have a negative impact on your credit score as it indicates that you are not serious about clearing your existing debts

• Increased credit limit on your current credit card can also have a negative impact on your CIBIL score because it is considered as an enhancement of your repayment burden. However, if you spend more on your credit card it does not impact your score as long as you spend within the credit limit

• High percentage of unsecured loans like personal loans and credit cards can affect your credit score in a negative manner

• Multiple loans and credit cards and new accounts also negatively impact your CIBIL score and banks will tend to review your loan application more minutely

How you can find your CIBIL score?

It is possible to check your CIBIL score online. On the official website of CIBIL you can get an online score request form which you need to fill out and submit. The entire process is quite convenient and easy and takes only a few minutes and a nominal fee. The online form will require your personal details like name, date of birth, phone number, address, income, identity proof and address proof. 

Once you fill out these details and click on submit, you will be taken to a page where there is an option to make payment. The fee for a credit report is Rs. 470 and you can make the payment either with your credit card, debit card or through net banking. After making the payment, you will be required to submit a few authentication details. Once the authentication is completed successfully, you will get your CIBIL score within 24 hours through email. As you can see it is a simple process and you can repeat it every few days and doing so is advisable because if you find that your score is low, you can take steps to improve it. 

People who are not very internet savvy or do not have access to the internet, have the option of sending a printed application to CIBIL along with a CIBIL transaction ID and copies of your ID and address proofs. When they receive this application, CIBIL will verify it and send you a printed copy of your credit report to the address mentioned in your address proof. It is also recommended that you obtain your credit score and report personally rather than going through a financial institution because enquiries from banks and other lenders can also have a negative impact on your credit score.

How is a personal loan granted based on the CIBIL score?

If you are asking for personal loan, it means you are desperate to make certain things happen. It can be for a home renovation, for taking care of medical expenses or for marriage. Personal loan is approved very quickly and thus is the best thing you can have at the time of emergency. However, there are certain criteria for the bank to approve the personal loan. One of them is the CIBIL score which is very important for a bank to process the loan. Before you know how it affects the loan it is important to know what CIBIL score is.

✔ You can check your Credit Score FREE of cost at Paisabazaar

What is a CIBIL score?

The credit information of every individual is stored with Credit Information Bureau (India) Limited which provide a score. This score is dependent on the previous loans that you have taken and all your records in the past. This credit information bureau is licensed by RBI and they operate not only for individual for companies too. They keep all sorts of credit records and the amount of credit you have taken.

The company was founded in 2000 and since then it has been helping people with loan processing. The payment of credit card and other loans, such as personal loan and home loan is kept into account. If you miss a loan payment, your CIBIL score will go down and it will be difficult for you to get a loan. The CIBIL score is generally between 300 and 900 and a good CIBIL score is 750 or above. However, it is possible to get a loan when your CIBIL score is 700 but that is also on the discretion of the bank. A bad score means you have failed in making the payments on time and the bank does not consider you to be a trusted for any loan in the future. If you keep on making the payment, your CIBIL score will keep on increasing and after certain point of time, you may again become eligible for the loan. 

How personal loan is dependent on the CIBIL score?

CIBIL score is the first impression that the bank gets about the customer. The bank will first check the score and then offer you loan. The CIBIL score does not only depend on the payment history but it also depends on the amount of credit you have used. If you have used up all your credit limit, it means your burden is quite high and the possibility of your score going down is more. While approving the personal loan, the bank will check it for sure.

The CIBIL score will be high if you mix secured and unsecured loans compared to only unsecured loans which will imply that your burden is high and you don’t have a definite time to pay the loan. If you have recently opened a number of loan accounts and have taken many loans, the bank will be more cautious before approving your loan. This is quite definite as the bank would not want to be trapped.

CIBIL score is something that cannot be deleted but can be changed. If you don’t have any credit record in the past then you don’t have any credit score what so ever. You can change the score with your payment activities for a few months. So, if you are thinking of taking personal loan in future you shall be ready for the same. As personal loans are not always planned it is always better to keep your score higher by paying regular dues. It does not harm to pay dues regularly as that keeps your burden low. At the same time, you are already ready for a new loan. 

How Personal Loan EMI Payments Affect Your Credit Score?

In India, personal loans are very popular as it helps people get over the temporary or an urgent need of cash. However, personal loan attracts some of the highest rate of interests that ranges from 15 to 20 percent across banks. To pay the loan debts, full or part payment is done by the customer. Both have a significant impact on your credit score.

Prepayment of an ongoing personal loan will close your loan account, which will shore up your credit score. On the other hand, part payment of a loan, if done sincerely will reduce your total loan burden and has no effect on your credit rating. But, if you miss your EMI’s, you’ll have to pay a penalty on the interest rate charged to you and your credit score will drop significantly. Let’s try and understand what actually a credit score is and how personal loan EMI payments can affect your credit score.

What is a credit Score?

A credit score is a 3 number that sums up your financial history prepared by the CIBIL (Credit Information Bureau, India Limited) by accessing your secured and unsecured loans or credit cards information in the past. This information is provided to CIBIL by various financial institutions on the monthly basis. Mainly, the credit score ranges between 300 and 900. The exact minimum score limit tends to vary from one lender to another, most banks seems to be favorable towards those with a credit score above 750.

How can one build a good credit score?

To build a good credit score, one must

1. Pay all the outstanding dues and EMI’s on time
2. Review credit report regularly to check the status of payment on the report. Sometimes your credit report may contain false information due to delayed information provided to CIBIL. This may adversely affect your credit score. So, it is always advisable to check your credit report for any such errors in the gap of every 6 months.
3. Do not apply for more loans or credit cards until the previous debts are paid off efficiently and your credit score is improved
4. Monitor dues every month and streamline expenses to avoid delay of EMI’s or credit card bill payments.

Importance of a good credit score

A good credit score indicates that you are maintaining your personal loan and credit card payments efficiently. Besides, you may also get following benefits:

1. A person with a good credit score can easily get a home loan or personal loan approval from the banks.
2. Anyone with poor credit score may get the loan but on higher interest rates that would translate to higher EMI’s. This is not the case with individuals having good credit score.
3. A credit score is used to determine whether you are eligible for the new credit card or loan to finance your education, buy a new home/car, or even to start a new business.

How personal loan EMI affect your Credit score?

Having multiple home loans, personal loan, and other loans may cause your credit score to decline significantly and in such a case you will be charged a higher personal loan interest rate. Because this indicates the high debt you already have. Usually lenders determine your DTI (debt to income) ratio prior to approving your loan and if yours shows that you are currently overloaded with debt, they will not consider you worthy of further credit as they will think that you are incapable of successfully repaying more EMI’s. However, it is not just multiple loans and credit cards that badly affect your credit score, it is only the unpaid debt on them that really counts against you.