107845This is how low salary people should avail credit card benefits!

”Credit cards motivate you to spend non-stop. But this can make you fall into a debt trap. Credit card is not a good thing for your financial health.” You will find such advice from financial planners and your elders. But do you know that through credit card, you can actually improve your credit score?

Can’t believe it? Don’t worry, take it easy because that’s right. Now let’s see, how credit card improves your credit score.  So for this, you will have to understand the credit utilisation ratio. It is that part of the total limit of your credit card that you actually spend.

For example, if you have a credit limit of Rs 1 lakh. you have spent  Rs 20,000 out of it. then your credit utilisation ratio or the CUR is 20%. The lower your CUR, the better it is.

Jitendra Solanki, a certified financial planner, says, “CUR of up to 30% comes under the category of good debt management. It helps in improving your credit score.” Solanki advises that you should avoid making minimum payments in credit cards. This is because making a minimum payment does not reduce your bill amount. This way your CUR will be higher. And it will ultimately affect your credit score.

How to keep the CUR down?
There are two ways to keep the CUR down. Firstly,  spend only up to 30 percent of credit limit. The second way is to have more than one credit card. Suppose you have 4 credit cards with credit limit of  one lakh rupees each.

You spend a total of Rs 20,000 per month.  Your CUR will be only 5 percent. This is because this ratio will be calculated on the total limit of all your credit cards.

However, keep in mind that managing more than one credit card is also a complex task. This is because the billing cycle and due dates are different. In such a situation, if you make late payment, then, you will have to bear the brunt of it.

Mid-cycle payment

There is another thing you should keep in mind. If you have spent more than 30 percent of the billing cycle of your credit card, then do not wait until the last date for payment of the bill. Try to keep the CUR below 30 percent by making a payment in the middle.

A good credit score is a proof of being a good customer for the bank. Banks see this score before giving a home, car or any kind of loan. A score above 750 is considered good. Banks give loans to customers with good scores at good offers and at the lowest interest rate.