How Credit Cards Affect Your Credit Score?

7 min read • Published 28 March 2023
Written by Jatin Pareek

Today, credit cards have become a preferred payment mode for everyone because of the convenience it brings. However, you need to maintain a healthy credit score and a decent record to maintain them. 

Cardholders should repay their debts within the given tenure without missing any dues, as it would help them maintain a good credit record. Often, many individuals opt for more than one credit card which might affect their credit score. 

If you are wondering how credit cards can affect your credit score, this blog is for you. Therefore, keep reading!

Impacts of Credit Cards on Your Credit Score

Credit cards are an easy way to borrow funds. As a result, your spending pattern and the way the card is being used, directly affect your scores. 

The points below highlight how these cards impact your credit score:

  • Net Banking

You can opt for net banking and online purchases with your credit card. You can access virtual credit cards via the lender’s app on your phone. Furthermore, on purchasing items on EMI, you can repay them with these cards. 

You can enable the auto-pay feature on the lender’s app or official portal, to never miss a due date. With this feature, the card will deduct the EMI amount from your registered account on every due date automatically. This will prevent your credit score from falling and will help you maintain a healthy score

  • Exceeding Credit Limits

Every credit card comes with a card limit which you cannot exceed. The card limit is based on your spending behaviour, income, credit score and record. When you exceed this limit, you will be left with a huge debt which would be tough to repay. Therefore, experts suggest limiting one’s credit usage to 30% only. 

Overshooting this limit can negatively impact one’s credit score. It can also set an impression that the borrower has a reckless habit of borrowing funds, thus, hurting their credit profile. 

  • Ignoring Credit Statement

A credit statement mentions all the transactions that you have done using your card. As stated earlier, these transactions negatively or positively affect your credit score. You can download this statement from your card’s app. You will also receive them as emails via your registered email address. 

You must study these records thoroughly if you are a regular credit card user. This will help you spot any errors in printing. For instance, a credit card company might fail to update a certain month’s repayment even after receiving the payment. This will show your outstanding amount as high.

Consider informing the issuer about the mistake with sufficient proof to update your statement in such cases. After which, your records will be updated, and the score will increase. 

Advantages of Having a Credit Card

Here are some of the advantages that a credit card owner can witness:

  • Interest-free Cash Withdrawals 

Certain credit card issuers allow customers to use their cards to withdraw cash from ATMs during financial emergencies and charge no interest for a stipulated time frame. This is an essential advantage of availing a credit card. 

  • Convenient EMIs

On making big purchases with a credit card, you do not need to repay the amount all together. You can consider opting for an EMI repayment option. With this, you can break the entire amount into small instalments and pay them throughout your loan tenure.

  • Convenient Payment Option Anywhere

Credit cards are now a popular payment option both online and offline. You can shop or purchase goods and services from e-commerce sites with your card. Furthermore, many merchants, retailers, and hotels also have credit card payment options. With the net banking system, you can make quick payments from anywhere using your mobile. Following this, you can repay the outstanding amount anytime as EMI.  

  • Secure Payment Option

Credit cards are secure payment options which is a significant benefit. With the rise in the popularity of virtual credit cards, you can control the details of your physical credit cards via mobiles. For instance, you can easily enable/disable the contactless payment option of your card from your mobile. Before every transaction, you must enter a PIN to ensure a secure transaction. Furthermore, your card’s mobile account is password protected with an m-PIN which is private only to you. In this way, your card’s security is difficult to breach. 

Does Closing a Credit Card Affect your Credit Score?

You may have more than one card if you are a regular user of credit cards. In many cases, you would wish to close or cancel old cards which you have stopped using long back. But, will closing your old credit cards negatively affect your scores?

Firstly, on closing your old card, your card limit will decrease, directly increasing your credit utilisation ratio. As the ratio falls, it would be tough for borrowers to maintain a 30% utilisation ratio. It would also be hard to borrow funds for emergency needs. Borrowing funds in such a scenario can result in a drastic drop in credit scores. 

Secondly, cancelling a credit card will also cut short the age of your credit history. This can negatively affect your credit report and your score. Your unused credit card with no outstanding amount largely impacts your credit account. Closing them can also drop your credit score. However, it would be easy to make it up if you repay the loans on time. 

Simple Tips to Manage Your Credit Card Wisely

Here are some tips you can follow to manage your credit cards and boost your scores:

  • Read and thoroughly understand the terms and conditions of your card before signing the agreement.
  • Avoid frequently applying for credit cards because this will provoke multiple hard inquiries and bring down your scores.
  • Make sure to repay bills in time to avoid late charges and high-interest rates
  • Avoid impulsive buying using your credit card and pay the outstanding charges before making a huge purchase

Final Words

To conclude, your spending pattern using a credit card greatly affects your scores. Therefore, you must maintain  healthy spending habits and purchase a credit card that suits your financial goals. Furthermore, avoid sharing your card credentials like passwords,  mPIN and user id with anyone for the security of your credit card. 

Frequently Asked Questions

What is a healthy credit score?

A healthy credit score varies from one credit card issuer to another. But, generally, lenders prefer a score between 700-900 as healthy. However, most lending institutions consider 750 and above as a good credit score for sanctioning a loan. 

How many credit cards are enough for one person?

According to experts, having multiple credit cards is risky for your profile. Moreover, applying for a new credit card can drastically reduce your score. However, borrowers can have 1-3 credit cards with exclusive features until they have enough funds to repay old and new debts.

 Can I apply for 2 credit cards at the same time?

It is better to apply for 1 credit card at one time and reduce your outstanding amount before opting for a new one. This is because when you apply for a new card, lenders set a hard inquiry to study your reports, which decreases your score.

What is a hard inquiry?

When you apply for a new card, lenders study and analyse your credit profile to review your loan application. This is a hard inquiry. Whenever a lender sets a hard inquiry, the applicant’s scores drop till the inquiry is complete. 

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Jatin Pareek

Investment Associate
Jatin is an Investment Professional in the making with expanding expertise in the debt and equity markets. He has completed his Bachelor of Technology in Civil Engineering from the Manipal Institute of Technology. He has helped build Wint Wealth in various capacities ranging from being a member of the Investor Relations Team to contributing actively at the Founder's Office. He has been an integral part of the Assets Team for about a year now.

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