Building a good CIBIL score requires diligence and patience and is not something that can be achieved overnight. Even if you are promised quick-fix methods to build your score, beware – they are the ones most likely to backfire. Over time however, you can work towards improving your credit score, by focusing on your credit history.
Credit cards are one such product that if used judiciously, can help you not only build but also enhance credit score over a period of time.
What is a CIBIL score?
It is a credit score generated by CIBIL, India’s oldest credit bureau. Owing to the first mover advantage, credit scores are very often referred to as CIBIL scores colloquially.
The first step
Your immediate plan of action should include requesting for a copy of your credit report, so that you know where you stand, and where you want to be. Check the report for errors and if you do spot any, have them rectified by contacting the concerned credit bureau. Keep a keen eye out for any payment-related inaccuracies such as delayed or skipped payments.
How will your old credit card help?
If you have been using a credit card for a fairly long period of time, don’t discontinue the card. Making timely payments on cards can generally help improve your score, as it shows a lender that you are able to use credit responsibly. Of course, this only works when you have no delayed or skipped payments, so be very careful as to how you utilise your credit cards. Someone with no credit card usage on their records at all is more likely to be perceived as a higher risk as compared to someone with responsible usage patterns.
Further, you need to use the card to continuously increase credit score, but make sure you don’t max the credit limit on your card. A good rule of thumb is to stay well within the amount assigned to you, the ideal being up to 30% of usage. Consider this: use as much as you can comfortably repay when the bill comes in. If you find it tricky to keep tabs, use your credit card as a debit card – remember that the money in your savings account will go towards card bill payment. In the meantime, rack up reward points on your card that you can then redeem at a later date. This will help boost your credit score, and at the same time you would have stayed well within your means. Credit cards are ultimately not free – while they do offer you the convenience and ease of use, never forget that the dues have to be paid, as it is nothing but a loan.
Also, it is likely that an older credit card has over time been assigned increased credit limits. If you abruptly close your card, the credit utilisation ratio on your remaining cards will go up, with the now reduced combined limit across cards. This can drastically affect your score, as it works as a red flag to lenders. If you really do need to close out an account, consider closing a newer one or maybe one with annual fees instead. You could also try to curb your spending, but retain the old card instead.
The length of credit history is an important parameter when it comes to credit reports. Hence, a card with some vintage, or a ‘good’ old card can go a long way in boosting your score. The older your accounts, the more responsible you seem to a lender and you are rewarded accordingly.
The bottom line
Ultimately, the decision of whether to continue with an old card account or not is entirely your decision. But do keep in mind that undermining such card accounts can be more damaging, and it might just be worth your while to keep them live.