Credit score plays a significant role in determining an individual’s financial health and income stability. The three-digit number is a key factor in securing various types of loans and getting better interest rates, as lenders use this to assess your creditworthiness.
A credit score of 750 and above is often preferred by banks and non-banking financial companies (NBFCs) while approving personal loans and credit card applications.
Though a high credit score is linked to borrowing and repayment of loans, people can even enhance their creditworthiness by shopping wisely. Here we take a look at how individuals can get day-to-day expenses to work in their favour and turn them into a tool for improving their credit score.
Effective Ways To Improve Your Credit Score With Shopping
Using credit cards responsibly to make daily purchases can help build a higher credit score. The key here is to make sure that you are managing all expenses responsibly and paying off dues without defaults.
Use Credit Cards
Always try to pay the balance of your credit cards on time and in full. At the same time, people should refrain from maxing out the credit card limit, since this can lead to overspending and lower the overall score. For credit health, it is pivotal to make all your payments on time.
Credit Card Rewards
Several platforms offer special discounts, cashback and reward points when shopping via credit cards. Taking full advantage of these can help in saving money and maintain a steady flow of transactions, thus reflecting a responsible spending nature in the credit history of an individual. This will also help to keep your credit utilisation ratio low, leading to a higher credit score.
For the unversed, credit utilisation ratio refers to the percentage of available credit that people are actually using. For example, if a cardholder with a credit card limit of Rs 1 lakh has spent Rs 70,000, this means that the utilisation is 70%. Experts usually recommend keeping it below 30% as it highlights that the person is not overly dependent on credit.
Avoid Frequent Loan Applications
Whenever a person applies for a credit card or loan, the lender is required to perform a hard inquiry of the individual’s credit report. Multiple hard inquiries in a short span can also lead to a lower credit score. It shows that you are too desperate for credit and lenders may not prefer such borrowers. Always ensure that you apply for a loan only when necessary.
Positive Credit History
A strong credit history can be built by shopping using a credit card and paying off the bills on time. These spending habits and repayment patterns are on the radar of the lenders as they highlight your financial behaviour.
Automate Payments
Setting up automatic bill payments for subscriptions and other purchases can ensure that you are not missing out on your due dates.
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