How to Rebuild Your Credit Score with a Credit Card?

When you apply for a loan, the lenders assess your eligibility based on your credit score. While applicants with a low credit score are rejected, people having high scores get quick approval as well as low-interest rates. Therefore, having a good credit score is pivotal for your financial life. However, if you are having a low credit score, don’t worry as there are multiple avenues to rebuild it. The easiest and most effective one of all the options is to get a credit card and use it properly. Here are a few smart tips on how to use your credit card to fix the bad credit on your own:

Make full payments 

Credit card holders often tend to delay or skip their payments. Strictly avoid doing this as it impacts the credit history of the cardholder. Moreover, when you pay the bill in full you will not be levied with any interest rate. Since your payment history has a direct influence on your credit profile, this is the best way to rebuild your credit score.

Make payments on time  

If you maintain a good record of paying your credit card, you can significantly improve your credit score over time. Make it a habit to pay off the full credit card bill at a time every month.

Maintain a good credit utilisation ratio

Keeping your credit utilisation ratio (CUR) below 30% is another effective way to rebuild your credit score. In fact, it is the second biggest factor that impacts the credit score. Ideally, you should maintain a credit utilisation ratio of less than 30% to earn a good credit rating. However, the lower the ratio is, the higher are the chances of credit rebuilding. Going above 30% of the credit limit or maxing out the card will indicate that you are not in control of your finances.

Keep your old credit card account open and active

The length of the credit history of an individual also significantly influences his/her credit score. When you close an old credit account to open a new credit account, the average age of your account drops and this in return negatively affects the credit score. Therefore, instead of shuffling from one card to another, just get a card that fulfils all your requirements. Start using it regularly as soon as you get it to keep it active. If you keep your old account open for a long time your reliability as a user and with time your scores will also increase.

Don’t apply for a new credit card 

Every time an individual applies for a new credit card or a loan it is reported to the credit bureaus as an enquiry. If it is frequent it negatively affects the owner’s credit score. Since you already have a low credit rating such enquiries will be more impactful and interrupt the process of score rebuilding. Thus, when you have an existing credit card don’t apply for a new card or a loan, however lucrative the offers might be. By doing this you can establish yourself as a stable contender with good finance management skills.

Opt for a secured credit card to repair your credit

Individuals who either have a bad credit rating or don’t have a credit score at all, should ideally, get a secured credit card to fix their credit and boost the scores. In order to have a secured credit card, you will have to open a fixed deposit. Some banks will then issue you a credit card which has 80% of the FD amount as your credit limit. In case you default on your payments, the bank will withdraw the deposit to compensate for the loss.

If you take a secured credit card and pay the bills on time your credit score will start building within 6 months. Even though it may take a longer time in certain cases, your credit score will start improving soon.

If you are someone with a bad credit profile it is time to start building your credit score. Though scores may take time to improve, just follow these credit card usage tips complicatedly and you will witness a striking improvement in your score.