Credit Cards and Your Credit Score – What You Should Understand!

Posted on Monday, August 21st, 2023 | By IndusInd Bank

Credit cards are a convenient payment tool, but they also affect your credit score, which is a measure of your creditworthiness. Your credit score is a three-digit number that ranges from 300 to 900 and is calculated based on various factors such as your payment history, credit utilization, length of credit history, credit mix and new credit inquiries. A higher credit score indicates that you are more likely to repay your debts on time and in full, and hence, more attractive to lenders. A lower credit score implies that you are a risky borrower and may face difficulties in getting loans or credit cards at favorable terms. 

How Credit Cards Affect Your Credit Score 

Credit cards can have both positive and negative impacts on your credit score depending on how you use them. Here are some ways that credit cards can affect your credit score: 

• Applying for a new credit card: Whenever you apply for a new credit card, the issuer will check your credit report to assess your eligibility and risk level. This is known as a hard inquiry and it may lower your credit score by a few points temporarily. However, if you apply for multiple credit cards within a short span of time, it may indicate that you are desperate for credit and hurt your credit score significantly. Therefore, you should apply for a new credit card only when you need it and after comparing the features and benefits of different cards.  
   
• Using your credit card: Using your credit card too much can also affect your credit score adversely. If you use your credit card too much, you may end up with a high credit utilization ratio, which is the percentage of your available credit that you are using. A high credit utilization ratio indicates that you are relying too much on borrowed money. Ideally, you should keep your credit utilization ratio below 30% to maintain a good credit score. 
   
• Closing your credit card: Closing your credit card may reduce your available credit limit and increase your credit utilization ratio, which can lower your credit score. It may also reduce the average age of your accounts, which is another factor that affects your credit score. The older your accounts are, the better it is for your credit score as it shows that you have a long and stable relationship with creditors.  
   

How to Improve Your Credit Score with Credit Cards? 

Credit cards can be a powerful tool to improve your credit score if used wisely and strategically. Here are some tips to improve your credit score with credit cards: 
 

• Pay your bills on time: If you miss your payments regularly on your credit card bill, it can have an adverse impact on your credit score. That’s why making payments on time not only helps you with your good payment history but also gives confidence to the lenders that you are a responsible credit card holder. 
   
• Pay more than the minimum amount due: If you pay only the minimum amount due, it will take you longer to clear your debt and increase the total interest cost. Moreover, it will also affect your credit score negatively as it shows that you are struggling to repay your debt. Therefore, you should always try to pay more than the minimum amount due or ideally the full amount due every month to save money and improve your credit score. 
   
• Monitor your credit report and score regularly: You should check your credit report and look for any errors or discrepancies in your credit report, such as incorrect personal details, duplicate accounts, unauthorized inquiries or fraudulent transactions. If you find any errors, you should report them to the concerned credit bureau and the credit card issuer and get them rectified as soon as possible.  
   

Conclusion 

If you are looking for a reliable and rewarding credit card that suits your lifestyle and needs, you should check out the IndusInd Bank credit cards. IndusInd Bank credit cards cater to different segments and lifestyle preferences, such as travel, shopping, entertainment, dining, and more. IndusInd Bank credit cards are designed to make your life easier and more enjoyable. So don’t miss this opportunity to get one today. 

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Disclaimer: The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. Hence, you are advised to consult your financial advisor before making any financial decision. IndusInd Bank Limited (IBL) does not influence the views of the author in any way. IBL and the author shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information.