how credit card bill payment affects your credit score

it's hard to imagine a world without any plastic money. but a flashy credit card is also more of a responsibility than what you might realise. for example, you have to be mindful of what you spend on your card so that you don’t struggle with your bill payments later. you must also be cautious about paying your credit card bills on time, as improper credit card management can lead to a low credit score.

how do credit cards impact your CIBIL score

your credit score represents your financial behaviour and impacts your ability to get credit in the future. it is a three-digit number that falls between 300 and 900, calculated on the basis of your credit report that is maintained by the country’s credit bureaus.
lenders use this figure to assess your creditworthiness to decide the fate of your credit applications. undoubtedly, your credit score is an important figure in your life, and it helps to know about factors that might bring it down. 
take the example of your credit card bill payments. paying down your credit card bill promptly, in full each month, can improve your credit score significantly. however, if you only choose to pay the minimum amount each month, it will impact your credit utilisation ratio and bring down your credit score eventually.

here are some ways in which credit card bill payments affect your credit score

1. late credit card bill payments

a single payment on your credit card that’s late for more than 30 days can send your credit score plummeting. even worse is that late payments stay on your credit report for several years, impacting your credit score for a long time to come. 
of course, unforeseen events can get your payments off-track in a month, but you can offset the damage by making timely payments in the future. here are some tips to avoid late payments and significantly improve your CIBIL score:
most credit card issuers let you choose your payment due dates to manage your bill payments better. if you have this option, you may choose to stagger your bill payment dates according to your paydays to manage your debt better.
consider signing up for an auto-debit facility to pay your credit card bills so that you never miss a bill payment date. however, you must be careful to maintain an adequate balance in your account each month so that the payment is not rejected.
you can also choose to make credit card payments throughout the month, say weekly or fortnightly, to pay your bills on time and balance your credit utilisation ratio.
it is also a good idea to set up reminders on your mobile calendar so that you remember your payment dates promptly.

2. new credit card applications

every time you make a new credit application, you shave off a few points from your credit score. the reason is that the lender pulls out your credit report for each application, making a hard inquiry on your credit file. 
multiple hard inquiries in a short timeframe are associated with higher risk or poor financial management, which leads to a lower credit score.
wondering how to improve your CIBIL score after too many credit applications? simply stop applying for new credit for some time, and you will soon see your score bounce back. these hard inquiries would also be wiped off from your credit report in a couple of years.
there are some other ways in which a new credit card may hurt your credit score as well. 
if you use your new credit card to make a big-ticket purchase or do a credit card balance transfer from your existing card, it will increase your credit utilisation, thus pulling down your credit score. it is ideal to keep your credit card utilisation under 30 per cent on any card.
it is also worth knowing that a new card reduces your credit’s average age, which may bring down your score.

3. cancelling a credit card

while it isn’t always easy to manage multiple credit cards, it is sometimes better to hold onto additional credit cards rather than cancelling them. even if you have paid off the complete balance on a card, cancelling it may reduce your overall credit limit, which, in turn, may raise your credit utilisation ratio. this will immediately affect your CIBIL score.

monitor your credit score with 2 simple steps

a good credit score indicates your creditworthiness, making it easier for you to get approved for a new credit card or mortgage. to avoid being taken by surprise at any point in time on your financial journey, you should keep a constant tab on your credit score. 
here are two simple habits that will help you keep your credit score under check:

1. pay credit card bills promptly

settling your credit card bills on time is the most important thing you can do to maintain your credit score. each month, you should try to pay your bills in full. in case you are facing financial difficulties, you should at least try to pay down the minimum amount due on your card to avoid additional charges.

2. review your credit report regularly

it is crucial to know your credit score before applying for a credit card or loan. you can check your credit score online by entering a few personal details. 
alternately, as a cred member, you can check and refresh your credit score in a single click, without any extra charges on CRED's members' platform. you can also order a free copy of your credit report from the various credit bureaus once every year. 
by reviewing your credit report closely, you can find any incorrect information or discrepancies that might be lowering your score. if found, such entries must be immediately disputed to have them removed from your file.

the bottom line

bringing up your CIBIL score has a lot to do with how you make financial decisions. make sure you never delay your credit card bill payments and go through your statements frequently. staying on top of bill payments is a sure-shot way to lead a more creditworthy lifestyle.