Understanding Credit Score in India

Your credit score is a three-digit number, typically ranging from 300 to 900, that reflects your creditworthiness. A score above 750 is considered good in India, and anything below 650 might limit your access to loans and credit cards.

Four major credit bureaus in India assess your credit score:

1. CIBIL: The most widely used credit bureau, CIBIL, provides scores based on your credit history.
2. Equifax: A global credit bureau that operates in India, providing detailed credit reports.
3. Experian: Known for its global presence, Experian also offers credit scoring services in India.
4. CRIF High Mark: A domestic credit bureau that provides credit scores and reports in India.

How a Credit Card Can Improve Your Credit Score

A credit card, when used responsibly, is one of the best tools for improving your credit score in India. Here’s how:

1. Payment History (35% of your score)

Your credit score is significantly impacted by how consistently you pay your credit card bills. Paying your dues on time, or even better, in full, is the most effective way to build a positive payment history, which directly boosts your score.

2. Credit Utilization (30% of your score)

Credit utilization refers to the portion of your credit limit that you’re using. It’s advisable to keep your credit utilization below 30%. For example, if your credit limit is ₹1,00,000, try to keep your outstanding balance under ₹30,000 to improve your score.

3. Length of Credit History (15% of your score)

The longer you’ve had your credit card, the better. Even if you don’t frequently use an older card, keeping it active increases the age of your credit accounts, which positively affects your score.

4. Credit Mix (10% of your score)

A mix of credit types, such as credit cards, personal loans, and auto loans, shows that you can manage various financial products. Having a credit card in your mix helps diversify your credit profile, improving your score.

5. Responsible Credit Usage

Using your credit card regularly for small, manageable expenses and paying the full balance each month shows lenders that you can handle credit responsibly. This builds trust with lenders and positively impacts your credit score over time.

Secured Credit Cards: A Smart Way to Build Credit in India

For those with no credit history or a poor credit score, secured credit cards are an ideal option. These cards are backed by a fixed deposit (FD), which acts as collateral, making them accessible to individuals with low or no credit history.

Here are some examples of secured credit cards available in India:

1. IDFC First WOW Credit Card

This card is ideal for individuals new to credit. With no annual fees and multiple benefits, it provides an easy way to build credit.

2. SBM Magnet Credit Card

The SBM Magnet Credit Card is perfect for users looking for more than just credit building—its cashback offers and merchant discounts make it highly rewarding.

3. SBM Credilio Credit Card

The SBM Credilio Credit Card is great for those who want to begin their credit journey while earning rewards. It’s a budget-friendly secured credit card with minimal annual fees.

Best Practices for Improving Your Credit Score with a Credit Card

1. Pay Your Bills on Time

Your payment history is the most critical factor in determining your credit score. To avoid late payments, set up automatic payments or reminders to ensure you always meet your due dates.

2. Keep Credit Utilization Low

Ensure that your credit utilization ratio stays below 30%. For example, if your credit limit is ₹50,000, keep your outstanding balance below ₹15,000. Higher utilization can negatively affect your score.

3. Use Your Card Regularly

Even if you don’t need to use your credit card for big purchases, use it regularly for small transactions like groceries or fuel. Regular usage helps you build a consistent credit history, which contributes positively to your score.

4. Check Your Credit Report Regularly

Credit bureaus like CIBIL offer the option to check your credit report once a year for free. Review your report regularly to ensure there are no errors that could negatively impact your score.

5. Avoid Applying for Multiple Credit Cards

Too many applications for credit cards can lower your credit score temporarily due to hard inquiries by lenders. It’s better to focus on managing one or two cards responsibly.

How Long Does It Take to Improve Your Credit Score?

Building or improving your credit score takes time. Here’s a general timeline:

• Immediate Impact: Paying off existing debt and making timely payments on your credit card can start showing results in a month or two.
• 3 to 6 Months: Consistent usage and on-time payments for a period of 3 to 6 months will improve your credit score noticeably.
• 6 to 12 Months: After a year of using your credit card responsibly, you can expect a significant boost in your credit score.

Common Mistakes to Avoid When Using a Credit Card

1. Missing Payments

Missing payments or paying late can significantly harm your credit score. Set reminders or enroll in auto-debit to ensure timely payments.

2. Maxing Out Your Credit Limit

Using too much of your available credit can hurt your credit score. Keep your credit utilization ratio below 30% to show responsible credit usage.

3. Closing Old Credit Cards

Closing older accounts reduces the average age of your credit history, which can negatively impact your credit score. Keep older accounts open, especially if they have no annual fees.

4. Ignoring Your Credit Report

Credit report errors can lower your score. Always check your credit report at least once a year and dispute any inaccuracies.

FAQs on Improving Your Credit Score with a Credit Card.

1. How long does it take to improve my credit score using a credit card?

It typically takes 3 to 6 months of consistent, responsible credit card usage to see a noticeable improvement in your credit score. Significant improvements can be seen within 12 months.

2. Can I use a secured credit card to build credit in India?

Yes, secured credit cards like the IDFC WOW Credit Card and SBM Magnet Credit Card are excellent tools for building or improving your credit score, especially if you have a low or no credit history.

3. What is the best way to use my credit card to build a good credit score?

The best way to build credit is to use your credit card regularly for small purchases, keep your credit utilization below 30%, and make sure to pay your bills on time every month.

4. How do credit bureaus in India calculate my credit score?

Credit bureaus like CIBIL, Equifax, Experian, and CRIF High Mark calculate your credit score based on factors such as payment history, credit utilization, length of credit history, and your credit mix.

5. Should I close my old credit card accounts if I’m not using them?

It’s better to keep old credit card accounts open, as they contribute to a longer credit history, which positively impacts your credit score.