How Does Credit Card Affect CIBIL Score in India?

How Does Credit Card Affect CIBIL Score in India?

16 May, 2023

Credit Cards are one of the perks brought about by the technological advancement in modern finance. With a simple swipe or a few clicks, you can use your credit card to pay for your purchases. However, using your credit card has a larger impact on your credit score. You must know that when you try to access financial products and services, most banks and institutions consider your credit score. It measures your creditworthiness and capabilities to pay back any borrowed amount. Thus, you must be aware of the credit card’s impact on credit score.

Does a Credit Card Affect CIBIL Score? How Does It Do So?

Credit cards affect your credit score in the following ways:

  • Card repayment history:

    While using a credit card, you must be mindful of how and when to repay the borrowed amount. For instance, your credit score will be positively impacted if you pay the entire amount due on time. However, your credit score will deteriorate if you consistently pay only the minimum amount due or tend to miss payments. Defaulting your credit card payments will negatively impact your credit score more than late payments. Remember that your repayment history significanly towards your credit score, so repay what you borrow on time.

  • Credit Utilisation Ratio:

    Another factor considered while calculating your credit score is the credit utilisation ratio. But what is it? Essentially, your credit utilisation ratio is calculated by taking into account your total outstanding debt and dividing it by the total credit available to you. The resultant value is presented as a percentage. How does credit utilisation impact credit score? Usually, it is advisable that you keep your credit utilisation ratio under 30%. Failing to do so has a negative impact on your credit score.

  • Length of Credit History:

    If you have not been using a credit card and are considering closing it, you might affect your credit score. Your credit score is impacted by the length of your credit history. Since an old credit card is instrumental in building your credit history, it can help your credit score. It can help a lender gauge how your creditworthiness has evolved over the course of holding the card.

  • The Number of Credit Cards:

    On the one hand, having multiple cards is advantageous. It helps extend the credit available to you, thereby reducing your credit utilisation ratio. On the other hand, having too many credit cards have an adverse effect on your credit score. As a thumb rule, you should try to avoid having more than three active credit cards at any given time. Too many cards can cause difficulty in repayments, causing your credit score to drop. Plus, it may also indicate that you require too much credit to get by.

How to Select a Credit Card in India?

Now that you know a credit card’s effect on credit score, you can select one that meets your requirements. First, evaluate and see why you need a credit card and what need you are hoping to address. Otherwise, take a look at the following:

  • Credit Limit: Make sure to check the limit extended to you. It should be enough to meet your needs without hampering your credit utilisation ratio.

  • Cashbacks and Discounts: Most credit cards offer excellent rewards that can be redeemed to avail of gifts, vouchers, etc. You can also enjoy cashback points and discounts that make your life easier.

  • Annual Fees and Charges: Ensure that you pick a credit card only after looking at the charges. You do not want to end up burning a hole in your pocket by simply paying fees.

  • Terms and Conditions: Read the terms and conditions associated with the card carefully. This will dictate how your experience with the chosen credit card goes.

If you are looking for an excellent credit card for daily use, you cannot go wrong with the HDFC Bank MoneyBack+ Credit Card. Easy to manage, the card also offers, discounts, fuel waivers, etc., that make managing your monthly expenses that much more seamless.

Click here to apply for the MoneyBack+ Credit Card now!

Continue Reading More About What Is A Cibil Score and Why It Should Matter Here.

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​​​​​​​*Terms and conditions apply. The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. Credit Card approvals at the sole discretion of HDFC Bank Limited. Credit Card approvals is subject to documentation and verification as per Bank's requirement. Interest rates are subject to change. Please check with your RM or closest bank branch for current interest rates.

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