How to use a credit card to build your CIBIL score?

New Delhi (India): Your CIBIL (Credit Information Bureau (India) Limited) score is one of the most important financial metrics in India. It reflects your creditworthiness and repayment history and is used by lenders to evaluate loan and credit card applications. Maintaining a good CIBIL score can open access to lower interest rates and higher credit limits. One effective way to build and improve your CIBIL score over time is by responsibly using a credit card. This article will discuss how using a credit card the right way can help boost your CIBIL rating.

Building credit history with a credit card

When you apply for and receive a credit card, the issuer reports this information to CIBIL. Simply having an open credit account on your report shows that you are actively using credit. It demonstrates your ability and willingness to take on debt responsibly. As you make timely payments each month, this positive payment history gets reported to CIBIL as well. Over time, as you establish a longer credit history of on-time repayments, your CIBIL score will increase. Starting early and consistently using just one credit card can lay the foundation for a high credit score.

Manage your credit limits wisely

In addition to making on-time payments, another factor that influences your CIBIL score is your credit utilization ratio. This is the percentage of your overall available credit that you are currently using. It is advisable to keep this ratio below 30% for the best results. For example, if your total credit limit across all cards is Rs. 1,00,000 and your current balance is Rs. 20,000, your ratio would be 20%. Using too much of your available credit can signal higher risk to lenders and negatively impact your score. Pay down your balances regularly to stay below the 30% threshold.

The IDFC FIRST WOW! Credit Card

For those looking to build their credit history and CIBIL score responsibly, one good option to consider is the IDFC FIRST WOW! Credit Card. Some key features that make it suitable include –

- No credit history or income requirements to apply. This allows even applicants with no prior credit experience to get started building a profile.

- FD-backed assurance providing a fixed deposit-based credit limit as high as 100% of the deposited amount.

- Reward points earned on spending can be redeemed, providing added value.

- No joining or annual fees ever, making it affordable.

- Zero forex markup charges on international transactions

The IDFC FIRST WOW! Credit Card is a useful option for credit history beginners as it has no stringent application requirements. By placing a fixed deposit, cardholders are assured of a substantial credit limit to make regular spend-based repayment and establish a positive track record over time with CIBIL.

Pay outstanding balances in full each month

While the credit utilization ratio promotes keeping balances low relative to limits, it is best practice to aim to pay off statements in full each month to avoid interest costs. Credit cards typically charge high interest rates, so the longer you carry an outstanding balance, the more expensive it becomes. Only spend what you can comfortably repay with your next statement amount. Responsible usage signals financial prudence to lenders and builds maximum positive history for your CIBIL file. Overspending or missing payments can harm your score.

Check your CIBIL report regularly

The CIBIL website allows you to check your own report for free once a year. Review it carefully for any errors in personal details or payment history. Promptly follow up with the lender and CIBIL to correct inaccuracies. Being aware of your current standing helps monitor progress as credit history develops. You can also opt in for CIBIL's Experian Credit Report, offering more frequent monthly updates for a nominal fee. Regularly tracking changes in your score based on credit card behavior provides visibility into improving financial profile.

Steps for a higher CIBIL score

While consistent on-time payments on an existing credit card lay the groundwork, taking a few more steps can help maximize your CIBIL rating.

Maintain a credit/debt ratio below 30% across all cards.

Pay more than the minimum due amount.

Check for pre-approved credit limit enhancement offers, which show lenders value you as a low-risk customer.

Add an authorized user to your card who also demonstrates prudent usage habits. Their behavior gets associated with your profile.

Pay all utility, phone, and entertainment bills on time to reflect solid overall financial management.

Conclusion

A credit card responsibly managed over time provides an effective way to build your CIBIL score gradually as more positive payment history gets reported. Starting early with a card like IDFC FIRST WOW! Credit Card allows establishing credit without barriers. Implementing various best practices around usage, on-time repayments and credit discipline delivers optimal results in developing a high-rating financial profile. This assists in qualifying for more competitive loans and credit offers down the line. With consistent effort, anyone can work towards a strong CIBIL score.

(No Hans India Journalist was involved in creation of this content)