Ways to Rebuild Credit Using a Credit Card
You apply for a personal loan only to find that your application is rejected or offered at a higher interest rate because of a low credit score. This can happen when you have missed payments in the past, used too much of your available credit or have not borrowed enough to build a credit history.
However, with consistent and responsible use, you can make a Credit Card a useful tool for rebuilding your credit profile over time. It will prove that you can borrow and repay what you owe.
6 Ways to Rebuild Credit Using a Credit Card
Start With a Card You Can Manage
If your credit history is limited or your score is low, apply for a Credit Card whose eligibility requirements and credit limit match your financial situation.
For example, you can apply for a secured Credit Card backed by a fixed deposit. Since the card is backed by collateral, it may be easier to access it than unsecured cards.
Pay Your Credit Card Bill on Time
Your payment history is one of the most important parts of your credit profile. Repaying your dues on time shows that you can responsibly manage borrowed money. Late or missed payments, on the other hand, can negatively affect your credit score.
You can set up reminders or enable automatic payments so that you do not miss the due date. More importantly, try to pay the total amount due in full rather than carrying forward a balance.
Keep Your Credit Utilisation Low
Credit utilisation is the amount of your available credit that you are currently using. For example, if your Credit Card limit is ₹1 lakh and your outstanding balance is ₹30,000, your utilisation is 30%.
High utilisation can make you appear more dependent on borrowed money and may negatively affect your credit profile. Credit bureaus recommends keeping utilisation low rather than regularly using a large portion of your available limit.
This does not mean you should spend unnecessarily just to show activity. Use the card for planned expenses that you can repay.
Pay More Than the Minimum Due
The minimum amount due is not the same as clearing your Credit Card bill. Paying only the minimum can leave a balance outstanding. This can result in interest charges and will keep your utilisation higher.
Whenever possible, pay the total amount due by the payment deadline. This helps you avoid revolving debt while maintaining a consistent repayment record.
Keep an Older Account Active
Building credit takes time. The length of your credit history is also considered when evaluating your credit profile. Therefore, constantly closing older accounts and opening new ones may not be the best approach if an existing card is affordable and well managed.
Check Your Credit Report Regularly
Rebuilding credit is difficult if you do not know what is affecting your profile. Review your credit score and Report to check your payment history, active accounts and recent enquiries.
Look for incorrect account information, unfamiliar enquiries or payments that have been incorrectly reported. If you identify such issues early, raise a dispute and get the information corrected.
What to Avoid While Rebuilding Credit
Rebuilding credit requires patience and consistent financial behaviour. Avoid the following habits to build a strong credit profile:
● Applying for multiple credit cards: Avoid applying for several Credit Cards or loans within a short period, as multiple credit enquiries may negatively affect your credit score.
● Maxing out your credit card: Using most or all available credit can increase your credit utilisation and may make it appear that you depend heavily on borrowed money.
● Taking unplanned cash advances: Avoid withdrawing cash from your Credit Card unless you have a clear repayment plan, as cash advances may involve additional fees and interest charges.
● Using one card to repay another: Do not use one Credit Card to pay another card’s bill, as this can increase your debt burden and make repayment more difficult.
● Ignoring card terms: Before you apply for a Credit Card, compare the annual fees, credit limit, billing cycle, repayment terms and eligibility criteria.
Final Word
A Credit Card can help rebuild credit, but only when it is used as a financial tool and not as an extra income. Start with manageable spending, keep utilisation under control, pay your bills on time and monitor your credit report regularly.
There is no overnight solution to a weak credit profile. Responsible behaviour repeated over time will help you create a stronger credit history and show that you can effectively manage credit.
Disclaimer: This article is published in association with HDFC Bank and not created by TNM Editorial.