Why Using Your Credit Card Improves Your CIBIL Score
The CIBIL credit score is a record of all your pertinent financial transactions. A credit score derived from your history is thus plotted, using which banks can ascertain if you are ‘good for it’, meaning if you can pay your dues on time, if your job is steady and reliable, and if you yourself are. How else are they going to stamp yes to your loan application?
Why do you need loans, you may ask. In this world, not everyone is born in the lap of luxury; in fact, for several so-called rich people the spoon in their mouths is not silver at all. You cannot make sufficient money to do the entirety of what you want to do in life. This is where loans step in and their renowned use of EMIs, or small payments made at regular intervals to pay off the whole amount.
With a simple and steady income, you can live the life you want in so many ways, but it all starts with your CIBIL score and if the numbers on it declare your eligibility.
Positive Ways To Use Credit Cards & Improve CIBIL score
1. Card Moderation
Do not apply for new credit cards too soon. Your CIR’s (your credit report’s) enquiries section will contain your loan applications. You may even have been given new credit facilities to take advantage of. If you have too many credit cards to your name, it may make you seem imbalanced and financially unreliable. At least that is what most lenders will feel after seeing your report. To them, you will seem overburdened with debt, which is why you need all those cards, to pay them off without defaulting. Will you be able to honor an extra debt added to the list? Not likely.
Paying all your dues and installments on time will produce a healthy EMI non-default mark. In your report, this will be all numbers and standard entries, nothing special or standout. However, a lender takes one look at an EMI or a bunch of dues left unpaid or that you paid late and they instantly assume, for no fault of their own, that you are an unreliable investment for a loan. You may or may not be able to pay it back, if your default history is anything to go by.
3. Credit Mix
A combination of unsecured loans (credit, personal, and so on) as well as secured loans (car, home, and so on) will result in a good credit mix to go on your CIBIL report. The more secured loans you have the better. An excess of the unsecured variety and you are adding to your burdens.
4. Low Balances
As you honor each due or payment, your balances will reduce. This will shed positive light on your CIBIL score, of course. Utilize your credit well during this time, meaning do not carry over any pending payments to the next billing cycle, refrain from maxing out your credit card (use only 30% as much as possible), and the game continues. Be steady and a bit cautious in the use of your card and your CIR report will glow. Your balances will be negligible without defaults.
A credit card alone can help you do all this. The statement may seem obvious, but there is no CIBIL credit score and CIR reports without credit cards involved; debit and such do play a part but they are by no means the main event. By following the ideas and techniques mentioned earlier, and more that you may come across elsewhere, your credit card will play a major role in influencing your CIBIL score.
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