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10 ways to use your credit card right!

By Abitha Deepak,
Last updated on: June 19, 2009 16:53 IST
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Your credit card can be the single most important factor in improving and increasing your credit score. On the other hand it can also plummet your score to dark depths if you are not careful.

Think smart and use your credit cards to your advantage.

Here are some pointers on what to do and what not to do in order to achieve this reality.

1. No debts so far. Opting for a brand new credit card for the first time

This makes sense for your credit score. Making use of a credit card judiciously will help you improve your credit score. Just make sure you open your credit card with a respected and popular brand name.

2. Opening a new credit card account

When you already have a couple of credit cards, opening a brand new credit card account can cause a dip in scores. By all means obtain a new credit card if you are not planning to get into more debt, else think several times before opting for one.

3. Low credit limit

Keep a tab on the credit limit of your credit card. Open a credit card account with a company that will provide you with the highest credit limit possible. High credit limits, even if they are not used will add merit to your credit score and improve it.

4. Closing credit card accounts

Even if you do not use your credit cards, don't rush to close them. Keep them as long as you can. If you must close them, then do that over a period of time. Closing too many too quickly will harm your credit score significantly.

5. Choosing the ideal credit card to close.

The number of years you hold a credit card account has an impact on your credit scores. Hence, let your oldest credit card be, if you must close a card opt for the most recent cards and close them one at a time, maybe once a month over a period of time.

6. Rotate usage of multiple credit cards

It is a smart move if you utilise different credit cards for your various different expenses instead of constantly using only one credit card for most of your purchases.

Make it a point to use each credit card you have once in six months. Some credit card companies might even close your account if they feel you don't use the card at all. In such instances, it affects your credit score.

To be on the safer side, try and use every card from time to time.

7. Bargain for a lower interest rate

If you have never defaulted on a payment for a few years, make use of your good repayment track record and speak to the bank officials for a better bargain.

Request them to lower your interest rate citing the good track record you hold with them. Keep following up with your bank from time to time and you may just get your wish!

8. Request for an increase in credit limit

You may have purchased your most recent card because of the higher credit limit. If at a later date you wish to close some of your cards and you know it makes better sense to close the most recent card, you have a dilemma.

The most recent card has the highest credit limit. The oldest card has the lowest credit limit. What do you do? In such instances, if you have a good repayment track record, approach the bank and negotiate for a higher credit limit especially since you have been their customer for quite a few years.

Most banks will oblige and you can then proceed to close the most recent card if you absolutely must do so.

9. Keep a self-imposed credit limit, which is much lower than the actual credit limit

Never exceeding 40 per cent of your credit limit has a very beneficial effect on your credit score. This shows your credit limit is high but you have not burnt it up and have plenty in reserve.

This logic helps you attain a much higher credit score. This is the same logic that suggests you should not close any credit card accounts, as they collectively will provide you a high credit limit, which is good for the score.

10. Paying off credit card dues quickly will dramatically improve your credit score

Try not to encourage too much credit card debt. Be wise and pay the dues quickly and keep rotating your cards. Paying off dues will cause a spike in your credit score, which is highly favourable.

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Abitha Deepak,

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