It is common knowledge how crucial it is to have a good credit score to get a credit card with excellent offers. This includes a lower interest rate, quicker approval, a higher credit limit and wider partner deals. Why? This is because this three-digit score determines your creditworthiness.
To calculate it, there are many factors involved. Having an understanding of how a credit score works will help you identify the areas you need to improve on. Here is a complete guide to credit score and its role in your credit card application.
Credit Score and Its Role
A rather important score, it not only determines whether you get approval for a credit card, but also how easily you can access credit.
- Issuers rely on this score to get an overview of your credit behaviour
- Your existing lenders and issuers report your financial behaviour to credit bureaus, which helps determine your score
- When applying for a credit card, all banks and NBFCs have variable eligibility criteria but a higher score gets you better terms
- While not all financial companies rely on it, most do, so it is important to build your history and boost it
In India, there are 4 credit bureaus, namely:
- TransUnion CIBIL
- Experian
- Equifax
- CRIF High Mark
All of them rely on certain factors to calculate your score, which are as follows.
Payment History
When you apply for a loan or credit card, timely bill payments, default, and late payments are reported.
Utilisation Ratio
Utilising your card’s credit limit to the fullest can affect your credit score adversely. Credit card issuers check this ratio to know your dependence on credit.
Overall Experience
A longer credit history allows credit bureaus to make an accurate assumption of your credit behaviour. It also indicates that you have experience in handling credit for a longer time, making you look more reliable.
Credit Mix
This factor is a reflection of your ability to handle different kinds of credit. If you have a mix of secured and unsecured loans along with credit cards, it adds to your score.
New Credit Behaviour
Applying for multiple credit cards or loans at the same time can lower your credit score. So, try to apply only after careful consideration.
Guiding to Enhancing your Score
Managing credit responsible is the key to getting an A+ score, so you can take your pick among the best credit cards in India.
- Track Your Spending
It is crucial to understand your spending habits. Not only this helps in improving your credit score but also in maintaining good financial health. Keep track of your purchases to avoid overspending and pay bills without delay.
- Pay Off Your Bills
Make a habit of paying your credit card bills in full on time to boost your score. This shows you are responsible and reliable when it comes to credit. If you are unable to pay the full amount, you can opt for the EMI option. Not paying total dues also attracts high interest charges, which can strain your finances.
- Service Existing Debt Well
If you have a loan, paying the monthly instalment on time is crucial. You can set reminders of your due date to avoid any late payment.
- Review Reports Frequently
Analysing your credit reports helps you to detect any mistakes or anomalies, which may be bringing down your score.
Credit Card Options with Poor Credit Scores
While the best option is to get a rewarding card, which is usually only possible with a good score, many card issuers provide alternatives. These credit cards are a great option if you don’t have a score of 750 or above. You can choose from the following according to your needs.
High-interest Credit Card
If your credit limit is lower than 750, issuers may give you access to a credit card with a high interest. With this, you can enjoy the perks of a regular credit card while building your credit history. However, if you miss bills, your liability can be very high.
FD Credit Card
It is a card that allows you to get a card against an FD account. Here, your FD amount acts as collateral and determines your credit limit. Students, seasonal workers and homemakers without a stable income can also avail of these credit cards. However, upon default, the financial institution can liquidate your FD, leading to a loss of interest earned.
That being said, you can avoid any interest fee if you pay your bill on time. Your FD also continues to earn interest as you use the card. What’s more, you can get guaranteed approval on such a card and use it to build your credit history.
That’s exactly what you get with the FD-backed One Credit Card. You can get it by booking an FD of just ₹2,000 and earn 5X reward points on the top two spending categories, no matter what they are.
You can also make the most of the powerful One Credit Card mobile application to control all aspects of your usage. In addition, you can save more with a wide range of discounts on shopping, dining, upskilling, rental payments and more. Apply online to enjoy the benefits of this lifetime-free credit card!
