Credit Card Habits that Affect Credit Score
Credit card helps in building credit score along with other benefits such as access to credit for certain time period. However what many individuals forget is that its unwise usage can lead them in trouble. With easing inflation there is a slowdown in debit card spends and more and more individuals are spending heavily through credit cards. However individuals often forget the various risks associated with negligent usage, most importantly the CIBIL score. So let’s see what types of usages will lead individual in trouble:
Transacting above or near to the card limit frequently:
Every card has a limit associated with it and based on your income and spending behavior the limit is set. While spending, if you frequently exceed the limit, then it will put you in trouble. This is because in the eyes of lender, frequent overspending means you are too much dependent on the credit i.e. poor in credit management. In addition to the hefty penalty fee, lender will increase the interest rate and/or decrease the limit. But what impacts you the most is the downgrading of your CIBIL score. However if the overcrossing happens unknowingly, then chances of your credit score getting impacted are very minimum.
Not paying the bills ontime:
“Always pay your bills on time”. This statement applies to every bill – credit card, loan, utility bills and others.
In case of utility bills, you would be just charged extra fine but when it comes to credit card, the repercussions are bigger as it negatively impacts the credit score. Frequent late payment downgrades your CIBIL rating. And this further results in rejection of any future loan or other credit applications as banks consider such individuals as risky. Moreover your interest would increase or credit card will be cancelled or limit would be slashed, amongst others.
Settling credit card bill:
When card debt reaches a level which is impossible to repay; then lenders offer an option of settling the bills. So instead of paying full amount, lender will ask you to pay a certain sum and then close the card account. This practice of credit card settlement may sound profitable to some extent but it directly affects your CIBIL score. Read tips on improving your credit score.
Increasing the card limit:
Too much reliance on card, hurts the credit score. This is because in the eyes of lender, such habit is a sign of credit hungriness. So if you frequently ask your bank to raise the credit limit then chances of your CIBIL rating getting impacted increases.
Applying at other lender when your credit card application is rejected?
Rejection of card application is very common as bank has to prevent losses arising due to payment defaults. Although you can apply to some other lender, it is advisable not to do so due to the reasons mentioned above.
But you can still apply and get credit card either through:
So in order to be in the good books of lender, credit card habits play a very critical role. Frequent misuse of card can create unforeseen financial trouble for you.
This article has been written by Chandra Mehta.
Chandra is a seasoned banker with 20+ years of experience in banking and financial services industry. He’s a retired banker and has served as Chief Manager and Assistant Vice President in State Bank of India/or its subsidiaries.
He has authored many articles on this site (allonmoney.com).