Why Use Credit Cards for Building Credit?
Starting young establishes a credit history, crucial for future financial goals (home loans, cars).
Responsible Use Benefits: Credit cards allow building a profile without high interest charges (unlike loans).
Rewards and Savings: Cashback, reward points, and discounts can be earned with responsible credit card use.
How Credit Cards Improve Your Credit Score:
Bill Payments (Highest Weightage): On-time payments demonstrate responsible credit use and improve your score.
Missed payments negatively affect your score through the "Days Past Due" section in your credit report.
Avoiding Debt Spiral: Paying only the minimum due leads to high interest charges and potential debt traps.
Aim to pay the entire balance to avoid this.
Credit Utilization Ratio (CUR):
Ratio of credit used compared to total available credit (lower is better).
Maxed-out cards and struggling to pay bills negatively impact your CUR.
Strategies to Maintain a Low CUR:
Credit Limit Increase: Request a credit limit increase from your bank to improve your CUR without changing spending habits.
Example: If your limit is ₹2 lakh and you use ₹1.7 lakh, your CUR is 85%. Increasing the limit to ₹4 lakh lowers your CUR to 42.5% if spending stays the same.
Multiple Credit Cards (Used Responsibly): Having multiple cards increases your total credit limit, potentially lowering your CUR. However, ensure you can manage payments on all cards.
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