Owning a credit card and using it regularly is one of the easiest ways of building credit. Your card issuing company reports periodic information relating to the account to the credit bureaus. What gets recorded in the credit report forms the basis of your CIBIL Score. The two main parameters relating to the credit card that affect your score are payment information and credit utilization ratio.
Timely payment of card bills helps boost your score, while late payments bring it down. So if you make regular on time payment of your bills and do not utilize more than 30% of available credit limit at any given point of time, you will have a good credit score. Though ideally you can use up 100% of the limit, but maxing out your cards makes you look like a risky borrower who is overly dependent on credit. Hence in order to prevent your score from going down you must ideally use only 30% of the limit and pay balances in full every month, to free up the limit.
One must not apply for too many credit cards in a short span of time. Too many applications create a number of credit enquiries which hurts your score. Also one must not have too many credit cards in one’s portfolio of accounts. Having a balanced credit mix of instalment loans as well as credit card accounts works in one’s favour.
But apart from these parameters, does the type of credit card also influence your credit score? There are so many different types of cards that cater to different needs of people. But does the type of card a person owns tell the lenders anything about his creditworthiness. Well, the credit scoring models do not treat different type of credit card differently. They just distinguish between instalment loan accounts and revolving credit accounts.
A secured credit card that is primarily used by people who have started establishing a credit history is treated at par with other credit cards. It will have the same impact on the CIBIL score as any other card having the same kind of credit limit and payment history. Hence if you do not qualify for regular cards initially because you do not have any credit history or if you have a bad credit score, then you can apply for a secured credit card. You will be required to put a deposit amount that determines your credit limit.
If you want to save on interest costs you can switch to a balance transfer card. Balance transfer cards allow you to shift your entire debt from other cards and offer a 0% introductory APR for a certain period of time. These cards are beneficial if you plan to pay off the debt within the promotional period. A travel card can help you earn more reward points if you travel often. It will also help you save money on travel related purchases.
Hence the type of credit card does not make any difference to your credit score. You can assess your goals and choose a card that suits your individual preferences and needs. All these cards will have a similar influence on the credit score. Remember to keep your credit accounts active and open. Closing old cards will affect the length of the credit history and hurt your CIBIL score.
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