Five lesser know ways to use credit cards to improve credit score

• Follow

Credit cards, if used wisely, won’t only help you meet your financial needs, but also to build a good credit score. A good credit score improves your creditworthiness and you have a better chance of getting your future loan approved. So, if you are a credit card user and want to improve your credit score, here are five lesser known ways:

Keep credit card utilisation under 33% Credit cards come with a credit limit i.e. the maximum amount of credit that you can avail to make purchases. This limit is decided by the bank and depends on your income. “You can create your credit score at high levels if you make a thumb rule to keep your card outstanding balance to 1/3 of the limit. It is even better if you can reduce it further,” explains Gaurav Wadhwani, Cofounder-  Credit Sudhar.

Increase credit limits to lower utilization If you are a frequent user of a credit card and find it difficult to maintain 1/3 of the outstanding balance, get the limit of your credit increased. This can be easily done if you don’t default and make regular payments.

Find a lower APR The interest rate at which you pay your credit card bill is called as APR (Annual Percentage Rate). You need not pay any interest if you pay on time. However, if you have made any big purchases and deferring the payment, then a credit card with low APR will save you from paying extra. In India, the lowest APR on a credit card varies from 18-26% i.e. between 1.5% and 3% per month.

Make frequent credit card payments Do not wait till the month end for paying your credit card bills. Clear your credit card payments immediately after you swipe it.  This will increase the frequency of payments and improve your credit score.

Treat credit cards like debit cards Put a cap on your credit card expenses equal to your bank account balance, or fix a particular amount you need to spend, whichever is lower. After every purchase, keep a note of the remaining balance which you have set or of the bank account. This way you can always have an eye on your utilisation which will ultimately help to increase your score.