How Credit Cards Impact Your Credit Score – Forbes Advisor INDIA


In India, the growth of credit card issuance has intensified and has been accepted in different geographies and population segments. With a plethora of rewards available, it’s hard to imagine our life without a credit card. The financial flexibility of buying it now, paying it late, and monthly loan-to-credit (EMI) payments has further increased the trend towards “cashless”.

A credit card is nothing more than a short-term loan, with a predetermined credit limit, agreed to by both the customer and the issuing bank. The credit limit on your card is the maximum amount you can spend. Every time you make a purchase or pay a bill, your card is charged and the credit limit is reduced. At the end of the billing cycle, you must pay back what you spent.

The benefits of a credit card today are endless. While the convenience of “buy now, pay later” along with straightforward IMEs are the main benefits, credit cards also offer a plethora of offers ranging from e-commerce to food technology companies. These changes every month give users something new to look forward to and allow them to make the most of what’s out there.

Benefits of owning a credit card

Having a credit card makes life easier, simplifies purchases and payments by offering the following advantages:

Convenience and security

Credit cards can be used to make bills and other payments in addition to making purchases. They are also accepted by all types of merchant categories and payment methods, whether physical or online. It can be used to pay for anything anywhere, just by swiping the card, without the need to carry cash.

It is also an advantageous payment instrument when traveling to a foreign country. This reduces the dependence on money and you can travel without the stress of losing your money or having your pocket. So from hotels to flights, dinners to shopping, a credit card can handle everything anywhere, in a highly secure and transparent way.

Reimbursement options

Credit cards offer flexibility when it comes to repaying contributions at the end of each month. Payment can be made using any of the available payment options, such as cash, check or online. For people who want to make large purchases without wanting to cut corners on their savings, EMI options are also available.

Incentives and offers

Many credit card companies offer a variety of great offers and incentives. The benefits are numerous, ranging from earning reward points to cash back rewards which can then be redeemed for additional offers. The cards also offer discounts on purchases made for tickets, vacations, or major purchases, saving you money.

How to use your credit cards effectively

There are many reasons to use credit cards, but the way you use your card has an impact on your credit score which determines your creditworthiness. Credit scores are used by lenders before they decide to give you a loan and also determine whether you qualify for preferential interest rates.

In order to maintain a good score, always make sure that no matter what credit product you have, that you are adopting a disciplined repayment plan and being careful with the use of your credit limit. Keep these factors in mind when using your credit card to ensure a good credit rating.

Payment of credit card dues

To maintain a good credit rating, it is advisable to make timely payments. At the end of each month, you have two options for repaying your credit card dues; total outstanding and minimum amount. It is advisable to repay the full amount before the due date. However, if you choose to clear the “Minimum Amount Due”, this will reduce the outstanding balance for the current month but will not reduce the Total Debt (outstanding amount).

Depending on your card, you will be charged 3% to 4% interest per month. In the event of a minimum payment due, a large part of the amount outstanding remains unpaid at the end of the period without credit. On an annualized basis, the interest rate can go up to 30-50% per year.

To avoid falling into this debt trap and ensure a good credit rating, you should always make credit card payments in full within the stipulated time frame. Alternatively, if you have to opt for the ‘minimum amount due’, it is advisable to pay the balance within the next month in full.

Credit utilization rate

The credit utilization rate is the amount of money you spend against your available credit limit, represented as a percentage. A low rate of credit utilization means that you are not overspending and that you are able to manage your finances better. Moreover, it also has a positive impact on your credit score.

How long you hold your credit card

The length of your credit card history is one of the factors that can affect your credit score. A card that you’ve been using for a few years versus a card that’s a few months old will have more information about your spending habits and will be valuable to your credit score. It is therefore advisable to keep your long-standing credit cards and to make sure that you pay contributions on them systematically.

Number of credit cards in your name

To increase spending limits and reduce the rate of credit usage, people tend to have multiple credit cards. However, it can become difficult to keep track of these multiple card payments, which can lead to payment defaults, negatively affecting the credit rating. It is best to have a limited number of credit cards and be disciplined in their repayments.

Basic tips for managing your credit card

To make sure you don’t go into debt because of bad credit card management, keep these simple tips in mind:

  • Be aware of your credit card terms and conditions and limit your use accordingly.
  • Don’t spend more than you can repay and keep spending within the credit limit, always.
  • Avoid impulse buying and only use your credit card for planned purchases.
  • Make sure you pay your credit card bills in full to avoid high fees and penalties.

Final result

Staying alert to your life and money goals can lead to better self-esteem. The disciplined use and management of credit cards will help you establish a healthy credit rating which, in turn, will ensure the achievement of your life goals and long term financial stability.


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