How To Build Your CIBIL Score By Using Credit Cards? Here's A Guide

CIBIL (Credit Information Bureau India Limited) score is a numeric representation of how credit worthy an individual is.

Applying for a credit card or loan has become very easy in today's digital world. All one needs is the basic documents and a decent CIBIL score. Financial institutions depend heavily on the CIBIL score to verify the eligibility of applicants before issuing a credit card or loan. Here's a guide to improve your CIBIL score.     

What is a CIBIL score?

CIBIL (Credit Information Bureau India Limited) score is a numeric representation of how credit worthy an individual is. The CIBIL score is a three-digit number, ranging from 300 to 900, provided by the Credit Information Bureau (India) Ltd., and authorised by the Reserve Bank of India (RBI) to provide credit ratings to individuals, companies, public and private institutions. 

A good CIBIL score, the higher the better, represents a borrower’s creditworthiness based on their credit history and behaviour. A score of 750 and more is considered a good CIBIL score and helps an individual get quick and easy credit. A score of 640 or lower is looked as subpar and needs to be actively worked on.

A CIBIL report basically lists the entire borrowing and repayment history of an individual. The credit report represents the marksheet of an individual containing his payment history, number of loans, outstanding dues, loan details and any other credit related information. The credit score or the CIBIL represents the percentage of marks received by an individual on their marksheet. 

Credit Cards And CIBIL Score

While we understand that the CIBIL score is based on an individual’s credit history, it would be wrong to assume that having no credit history helps build the CIBIL score. The relation between credit card and CIBIL score is a co-dependent one. Not only is a good CIBIL score needed to avail a credit card, a credit card can successfully help build a positive CIBIL score for an individual. 

There are many ways a credit card can help add to your credit score (CIBIL). 

Credit Debt Repayment

Always clear your credit card dues on a monthly basis. This helps maintain your credit score and ensures you don’t enter the debt cycle by letting dues pile on. This also helps communicate to the financial institutions that you have a habit of paying your dues on time and can be trusted with money.

Prefer Cash For Larger Expenses

Using cash to pay for larger purchases not only keeps your spending in check, but also ensures you are able to repay on time. This also helps in maintaining your budget. 

Monthly Bills

Pay your monthly bills like internet bill, electricity bill, phone bill, etc, using a credit card. This helps build your credit score and keeps your credit card use in check, as these expenses tend to be lower than material purchases. 

Credit Mentality

Use the credit card to display your credit mentality to the financial institutions. Dont let yourself be trapped into believing the credit security of a credit card. If you use your credit card like a debit card, you will be able to manage your money responsibly, showcasing your sound credit mentality. Not only will you be able to repay your credit dues on time, but you will also avoid overspending. 

Use Credit Cards Monthly

If you have a credit card and don't use it even once in a month, it will still help increase your CIBIL score. But using the card at least once a month will help expedite the process. 

Avoid Multiple Credit Cards

While owning multiple credit cards helps get better deals, it might not be the best decision for you. If you have a habit of impulsively buying, avoid owning more than one credit card as you might end up spending more than your monthly limit. This will hinder your ability to repay on time and leave you vulnerable to a credit debt crisis, in turn damaging your credit score.

These practices can be beneficial in using a credit card as a CIBIL score building asset. But for that, these need to be not just understood but adapted as part of your lifestyle. With some will power and commitment, not only will you be able to build a good CIBIL score but also develop a useful money management approach towards life.