Credit card is the first credit product for most users. The credit history starts with their first credit card and maintaining a good behavior can help users get to a good credit score (CIBIL) and gain access to many other credit products in the market. Here are some tips on how you can use your credit card to improve your credit score.
Pay dues on time
This is by far the most important thing you need to do. Repayment history has a 35% weightage in your credit score. It will improve your credit score and also save you from unnecessary fees and very high interest rates. Ideally it is best to pay off the credit card dues in full every month but ensure you at least pay the minimum due before the due date. You will charged an interest on the balance carried forward after the minimum due is paid but it does not affect your credit score adversely.
Use credit card regularly
Use your credit card for regular purchases. This will show that you are using the credit card and paying it off every month. Credit utilization (Credit Used/Credit Limit) is the second most important factor in your credit score with 30% weightage.
Increase credit card limit
If you have been paying off your credit card dues on time your bank will offer to increase your credit limit. You should take this offer and increase the limit. This will allow you to manage the credit utilization more effectively.
Do not close credit card
It is tempting to close old unused credit cards given their reputation for surprising users with fees. But closing old cards can reduce your credit history and also increase your credit utilization both of which can have an adverse impact on your score.
Do not apply for new cards/loans
Avoid applying for new cards/loans until you get to a good credit score. Each time you apply, the bank does a credit check. A high number of credit checks are indicative of desperation and will reduce your credit score.
With these simple steps you should be able to get to a credit score (CIBIL score) within 6 months. You can check your credit score/CIBIL for free peridically as mentioned here : Check CIBIL Score