Credit Cards offer multiple advantages. You can easily use this card to make payments online and offline. You can also use it as a financial backup if you face unexpected expenses. It can also offer various rewards and other perks. Besides these benefits, you can also use this card responsibly to build a better credit history. Let us understand more about how to use a Credit Card to build your credit history:
Pay your bill on time
A Credit Card is a financial instrument that lets you purchase things now and pay for them later. When you utilise your Credit Card to make purchases, the card issuer usually pays the merchant on your behalf. Consequently, the issuer sends you a bill later. Such a bill is generated on a pre-determined date every month and is called the billing date. Your card bill includes all transaction details and mentions a due date.
To build a positive credit history, you need to pay the total bill on or before the due date. Credit Card issuers report the transactions you make using your card to the bureaus for calculating or updating your credit scores. If you delay or default on your payment, your credit score falls. Conversely, consistently repaying the entire bill amount by the due date is considered a positive trait.
Consequently, it could steadily increase your credit score. Paying your entire Credit Card bill on time also prevents you from paying interest as per the Credit Card interest rates decided by the issuer. If you cannot pay the entire bill, pay at least the minimum amount due. This keeps the issuer from reporting a late payment to the credit bureaus.
Use your card
While you should avoid spending a higher sum on your Credit Card than you can pay off, you should make regular purchases using it. This is because issuers like to see that you are not leaving your card dormant.
Limit your credit utilisation ratio
Every Credit Card has a particular credit limit. This is set by the Credit Card issuer and depends on your eligibility criteria and credit score. The credit utilisation ratio is the total credit limit you use. Banks prefer to lend to individuals who keep their credit utilisation ratio within 30%. Applicants with a higher credit utilisation ratio are usually considered riskier to lend to. Credit bureaus also decrease your credit score when you exceed the 30% limit.
On the other hand, cardholders with lower credit utilisation ratios generally get a higher score. Hence, keeping your credit utilisation ratio within 30% is a good idea.
Avoid multiple Credit Card applications
If you register multiple Credit Card applications within a shot interval, it lowers your credit score.
Conclusion
Now that you know these tips, you can conveniently consider them when trying to build a positive credit history using a Credit Card.
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