In India, during 2018-19 FY, 79% of the total credit applications were approved for borrowers who held a credit rating higher than 750, as per TransUnion CIBIL. Lenders majorly assess the default payment risks of the loaning money by analyzing applicants’ credit profile. Notably, a credit card can weigh critically as its use provides a detailed insight into borrowers’ credit behaviors’.

Thus, depending on how borrowers use cards, they can move towards enhancing the score or experience a slump in the score. Usually, availing the credit instrument can impact the user’s creditworthiness positively. However, irresponsible debt management can worsen it as well.

Listed below are the factors that can make or break a credit profile based on the credit card’s usage –

• Payment history

It is a dominant factor comprising 35% of individuals’ credit profile. Thus, borrowers with in-time debt payment records in full, hold higher credit scores. From lenders’ point of view, this aspect signifies the following debt management functions of borrowers –

1. Whether individuals pay credit card dues in time or not.
2. In the case of late payment, this factor also elaborates how late it is. The longer time individuals take, the worsened impact it can bear on their score.
3. If any credit accounts of borrowers have faced forced recovery or not. This can be a significant setback for potential borrowers.

Precisely, borrowers who use a credit card wisely with in-time bill payments usually hold a higher score.

• Credit utilisation ratio

If borrowers tend to utilize almost the entire debt amount available, it can severely damage their profile. Mostly, this factor evaluates the credit availing tendency of users and their dependence on this form of financing. Comprising 30% of the score’s weightage, credit utilization ratio compares the amount of consumed debt to the total credit limit available.

Thus, the less borrowers can keep it, the better possibilities of a higher score. Typically, individuals should try to maintain this ratio below 30% of their credit card limit. So, cards with an extended limit can help borrowers to maintain this ratio if managed correctly.

• Duration of credit history

During a credit profile evaluation, lenders also scrutinize the duration of borrower’s credit history. Even though it accounts for only 10% of users’ score, it has substantial importance. It helps to analyses the following factors –

• The age of first borrowing.
• The average length of obligations.

So, individuals can avail the advantages of credit cards with a prolonged history of timely payment that helps improve their profile. However, a short history is also accountable if repaid timely.

• New credit

Depending on the number of recent debts availed by an individual, financiers assess their credit risk. Individuals who are prone to avail multiple new credits may enhance the chances of repayment default in the future. Several fresh borrowings imply cash flow hurdles, and thus these profiles may come riskier to lenders.

So, at the time of availing new credits such as these cards, borrowers should have a thought-out plan in place on how to manage funds and avoid availing multiple new cards within a short span.

• Types of debt

While loaning money, lenders tend to prefer profiles with a balanced mix of credits like secured and unsecured loans. It helps them gauge how different borrowers behave towards various credits. Nonetheless, this factor is not as critical if the dues are cleared in time. In the end, timely payments matter most.

Moreover, a strong profile also helps to avail advances in the form of credit cards with improved benefits. For example, if individuals wish to apply for credit cards with excellent reward programs like Bajaj Finserv RBL Bank SuperCard, they must possess a CIBIL score of more than 750. These reward programs help save more on each spend.

Hence, individuals can enhance their profile by maintaining these scoring guidelines properly. They can use a credit card to improve their credit score as well as meet their financial objectives cost-effectively with due diligence in bill payment.