How do Credit Cards help you to improve your Credit Score?

Whether an individual is applying for a new credit card or is looking to borrow some funds from the bank, a credit score is one of the major indicators that helps them in determining whether they will be able to repay such debt or not. A credit score is an important 3-digit figure, with the help of which, the prospective applicants can get loans and even apply for credit cards . Dependency on credit cards can probably be risky and expensive and can make you fall into the trap of debt, from where it is very hard to get out. But there is nothing to be worried about while using a credit card because if used in a responsible manner, credit cards are one of the best tools that will help you in building and improving your credit score.

If you are an individual, who has never borrowed anything from any financial institution, or you are someone who has a bad credit history, having the right credit card and its mindful usage can surely help you in improving your credit score. In this article, we will discuss a few points that will be quite helpful for an individual who wants to improve his credit score.

What is a credit score?

A credit score is a 3-digit numerical number that depicts an individual’s creditworthiness. The higher the credit score, the more the chances of an individual getting approved for any loan or credit card. A credit score is comprised of some essential elements such as credit history, repayment history, credit limit used, etc. If there is any default in any of the elements mentioned above, your credit score will start declining.

Reasons behind the declined credit score

A credit card is such a sensitive financial tool that if used irresponsibly, the credit score will decline, but if you want to maintain or build your credit score, you have to use your credit card in a sensible manner. Following are the reasons why a credit score may decline –

Over usage of the credit limit

Ideally, a credit cardholder should use 30% of the credit limit to keep his credit score in check. If in any scenario, he goes beyond this limit, it shows that he is over-dependant on debt and that will put a red mark on your credit score.

Delayed bill payments

A credit card bill has to be paid every month. You have to pay at least the minimum amount due on the credit card but the experts say that cardholders should try to pay a credit card in full so as to avoid payment of any interest and undue charges on the credit card.

Carrying on balances for long

Technically you should repay the amount that you have used through your credit card by the due date. But if you don’t do so, this amount will keep on increasing day by day, and late payment charges and interest charges will keep accumulating on the credit card, hence it will become difficult for the card owner to pay such heft amount and hence will have a negative impact on the credit score.

How to improve credit score using credit cards

Following are the ways that credit cardholders can adopt if they want to improve their credit score using a credit card –

Pay your credit card bills on time

Paying your credit card bills on time and in full is the best way in which you can boost your credit score. Repayment history accounts for 30% of the credit score. The credit card institutions give you enough time i.e., 30-45 days to repay your credit card bill. Even if you are unable to pay the full amount, you should try to pay the maximum that you can and carry the least amount to the next payment date.

A Low credit utilization ratio

A credit utilization ratio is the percentage of a borrower’s total available credit that is currently being utilized. It is a major component that credit reporting agencies use in calculating an individual’s credit score. An ideal credit utilization percentage is 30%, i.e., a maximum of 30% of the credit limit to keep your credit score in place. The less you owe, or the lower your credit utilization ratio is, the better it is.

Keep the same credit card for a longer period of time

Credit cardholders should try to keep a single credit card for a long period of time so as to have a better ‘length of credit history’. If your ultimate goal is to build a credit history using a credit card, you should keep your credit card for a longer period of time as this accounts for 15% of your credit score.

Go for a balance transfer credit card

A balance transfer credit  card allows credit cardholders to transfer the balance on a high-interest-bearing credit card to a new low-interest-bearing credit card. Generally, as a promotional deal, you might get these credit cards at a 0% interest rate. With this, you can pay off the bills of all your credit cards and then have only one card, that too at a very low rate. This will help you to manage your debt and pay less interest for a period of time to get your finances back on track, which will in turn help you in improving your credit score.

Go for a student credit card

Student Credit Cards are one of the best options for students  to build their credit. The borrowing limit of these credit cards is quite low as compared to the general credit cards but the functioning is the same as that of a general credit card. If used in a responsible manner, these credit cards are a great tool for students to build their credit scores at a young age.

Things to be careful about while using a credit card

Following are a few points that a credit cardholder should stay careful about while using a credit card-

Missed Payments

Delayed payments or missed payments are the most important reasons that have a negative impact on your credit score. You also have to pay an extra amount (late payment charges + interest charges) when you miss any credit card bill payment.


Using a credit card beyond its limit can ruin your credit score. You will fall into a debt trap. The larger the balance, the harder and more expensive it gets to pay off credit card bills.

Only paying the minimum amount due –

If a credit cardholder pays only the minimum due each month, the interest portion will start adding to his/her balance, and the debt amount will grow manifold.

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