How to Build Credit with a Credit Card?

If you are a Credit Card user, you would be happy with the fact that a small rectangular card can aid so much in managing your finances. But only if you use it wisely, can it help you build a good credit score. A Credit Card is essentially a loan taken from a bank that you can use for several purposes. However, most people fall into the debt trap owing to frequent usage of the card or maybe delays in making Credit Card bill payments that can severely impact a credit score.

What is a credit score?

A credit score is a three-digit number that depicts a borrower's creditworthiness. It is usually between 300-700. The higher the credit score, the better it is getting a loan from a bank. A good credit rating reflects that you are a responsible borrower with a good repayment history. You can do a credit score check online.

What is the relation between a credit score and a Credit Card?

Most borrowers purchase a Credit Card to increase their financial capability, for it allows you to buy anything that is beyond your purchase limit. Not many know that a Credit Card can help you build your credit score. Your credit utilisation and Credit Card bill payment habits are reported to the credit bureaus that create a credit report in your name. So, if you have a zero credit rating, then using a card can be a smart way to start from scratch.

So, here are some steps you can take to build your credit history by using a Credit Card:

• Pay your Credit Card bill on time: The foremost of all is making the Credit Card bill payments on time. Delayed payments attract accrued interest charges and late payment fees. Additionally, it is crucial to avoid making minimum due payments as the interest rate gets piled up on the outstanding billing amount. You can set an automatic payment on your account to ensure that you never miss out on payments. This will surely improve your credit

• Use your card only when it is necessary: As a Credit Card user, you may at times give in to the offers/discounts or deals provided by your favourite brands. Make sure you limit the purchases made through the Credit Card

• Don't max out on your Credit Cards: Every Credit Card comes with a pre-defined credit limit. This limit is decided by the bank based on your income and other eligibility factors. Going overboard with your spending, which is beyond your credit limit, can majorly affect your credit score. If you want to improve your credit history, it is essential to control your expenses and stay within the assigned credit limit

• Keep your old Credit Cards: Banks provide Credit Cards to keep up with the evolving needs of the customers. New Credit Cards may take over the older ones in terms of features, benefits and offers. Often, when you buy a new Credit Card, you may discard or close the older one because it may not be useful to you anymore. However, it is advisable not to close the old Credit Card, as the longer you have one, the better it is for your credit rating.

If you've never had a Credit Card or taken out a loan before, consider applying for a secured Credit Card from ICICI Bank.