A good credit record can benefit you in many ways. You can get loans approved easily at better rates; therefore, it is important to manage a healthy score.
On the other hand, it is often seen that people with lower incomes are doubtful about how they can improve their credit scores. One of the most viable and effective ways to do this is through a credit card for low income. Even with a limited income, you can build credit by following certain practices through your credit card. Here are a few useful points that can help you acquire a good credit score even if you have a limited income:
Pay Your Credit Card Bills Promptly and in Full
The key to good creditworthiness is being responsible in handling credit. Paying your credit card bills on time and in full indicates that you are good at managing debt. If you have never borrowed before, you may have a low credit score due to a lack of credit history.
But once you start borrowing through a credit card, your credit history starts getting recorded. Up to 35% of your credit score is attributed to your payment history. Therefore, it’s essential always to keep your payment history clean.
Keep Your Credit Utilisation Ratio Low
The credit utilisation ratio is between your monthly credit limit and how much credit you use in a particular month. It is an excellent practice to maintain 30% or below credit to keep yourself in the good books of credit bureaus and to maintain a good credit score.
Minimise Your Number of Credit Cards
With so many offers coming through with credit cards at lucrative rates, it’s tempting to take on multiple cards, particularly with the special offers they lure you with. However, taking on more credit can be more of a hassle than a benefit, mainly when you maintain a busy lifestyle and lose track of your borrowing.
When you get a new card, it gets recorded with the credit bureaus. So, limiting the number of cards is a good idea.
Buy a Secured Credit Card
Secured credit cards are helpful for people with poor or low credit cibil scores. For example, a secured credit card would suit your needs if you have never owned one.
You offer collateral, typically an amount of money, for acquiring a secured credit card. Your collateral serves as a guarantee against your defaulting. When you apply for a credit card for low income, make sure you make your payments regularly, it can benefit your credit score greatly in the long run.
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Build an Emergency Fund
Financial emergencies can occur anytime. Sudden illness, an accident, or job loss can put you into financial difficulties. It’s always good to save for such situations. Avoid using your credit card for emergencies because you may fall into a serious debt trap.
Putting aside a monthly amount, a percentage of your salary or monthly income will accumulate in your bank account. In the event of a financial emergency, you can use this amount without having to use your credit card. Your credit score won’t be impacted.
Treat Your Credit Card as You Would a Debit Card
It’s easy to swipe your card and pay for stuff you probably couldn’t afford using your immediate cash. But you can spend more than you earn if you aren’t cautious. Always keep track of your expenses and set a fixed budget for expenditures just as you would for your debit card.
You can keep your purchases in check and avoid paying high interest to your credit card company. Even if you know how to transfer money from credit card to bank account, it is better to avoid it as it can attract undue added fees and interest.
Maintain Old Credit Cards
You can easily sign up for new credit cards, use the benefits, and cancel them. However, every time you buy a new credit card or close a credit card account, the credit bureaus record it. Frequently opening and closing credit card accounts does not reflect good credit behaviour.
Further, even after you close old credit cards, the record continues with the credit bureaus. It is a good way to build credit if you maintain old and existing credit cards.
Ensure Your Credit Card is Best Suited to Your Needs
Every credit card is not suitable for every individual. Each person has specific financial requirements; some credit cards offer attractive rewards and perks. It is always good to research and compare before opting for a particular credit card to ensure it is most suitable for your needs.
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A credit history is essential for getting a loan, mortgage, or credit card application. Sometimes, it can even have an impact on your employment prospects. You can responsibly use your credit card to build credit by following the tips we have outlined here.
Pay your credit card bills on time and keep your credit utilisation ratio low to build credit and enjoy the benefits of a high credit score even on a limited income.