Use a Credit Card to Build Credit

How To Use A Credit Card To Build Credit

Are you struggling with a low credit score or have no credit history? A poor credit score can be a major roadblock when applying for loans or a new credit card.

But did you know that one of the best ways to build credit is right within your wallet? Yes, we're talking about your credit card. In this article, we'll guide you on using it effectively to not just spend but also build a strong credit history.

Understanding credit score and its importance

What is a Credit Score?

A credit score is a numerical representation of your creditworthiness, which lenders use to evaluate your eligibility for loans or credit cards.

How is it Calculated?

The score is calculated based on several factors, such as payment history, credit utilisation ratio, and length of credit history.

Why is a Good Credit Score Important?

A good credit score can make your financial life much easier, offering lower interest rates on loans, higher chances of loan approval, and even better terms on credit cards like the Kotak811 dream different credit card.

Eligibility for a credit card

When using a credit card to build a robust credit profile, the first step is to actually get one. But what does it take to qualify for a credit card in India? 

Let's delve into the basic requirements and the types of cards available for various credit levels.

Basic requirements

Getting a credit card in India comes with a set of minimum eligibility criteria that you must meet. 

Here are some fundamental requirements:

  • Age: You need to be at least 18 years old. Some premium credit cards might have a higher minimum age requirement, usually 21 years.
  • Stable Income: Credit card issuers want to know you can pay back what you spend, so having a stable income is essential. For verification, you may need to provide proof of income, like salary slips or income tax returns.
  • Credit Score: While only sometimes a necessity, having a decent credit score can make you eligible for a credit card and offer you cards with better terms and benefits. For instance, a good credit score might make you eligible for a Kotak811 Dream Different Credit Card with lucrative benefits.
  • Residential Status: Being a resident of India or having a certain stay in the country can also be a requirement.
  • Additional Documentation: Apart from the above, you may need to provide identity, address, and age proof as required by the Reserve Bank of India (RBI).

Types of cards for different credit levels

Your credit score plays a significant role in determining the kind of credit card you're eligible for.

Here's how:

Secured credit cards

You might find getting a regular credit card challenging if you have a low credit score or no credit history. In such cases, a secured credit card can be a good option. A fixed deposit usually backs these cards, and the credit limit is up to 80-90% of the deposit amount.

Standard credit cards

These are the most basic types of credit cards and usually do not offer many rewards or benefits. However, they are easier to get and are one of the best credit cards to build credit if used responsibly.

Premium credit cards

These cards have various benefits, such as air miles, lounge access, and more. However, they also have a high annual fee and require a strong credit score.

Specialized credit cards

These include cards tailored for specific needs like shopping, travel, or fuel. The eligibility criteria can vary depending on the benefits offered.

Must Read: Various Types Of Credit Cards Available

Setting up your credit card for success

Choosing the Right Credit Card: Not all credit cards are created equal. Pick one that aligns with your spending habits and offers benefits that you'll actually use.

Understanding credit limits: Your credit limit is the maximum amount you can owe the credit card company at any time. Staying well below your credit limit is a good practice.

Importance of reading terms & conditions: Always read the fine print to understand the fees and interest rates associated with the card.

Managing credit utilisation

Understanding and managing your credit utilisation is pivotal in building a healthy credit score. Often overlooked, this factor can make or break your credit profile.

Let's delve deeper into what credit utilisation is, how it impacts your credit score, and tips to manage it effectively.

What is credit utilisation?

Credit utilisation measures how much of your available credit you use at any given time. It is calculated by dividing your current credit card balance by your credit limit.

For example, if you have a credit card with a limit of ?1,00,000 and used ?30,000, your credit utilisation ratio would be 30%. A lower ratio is usually viewed more favourably by credit bureaus.

  • Importance: A lower credit utilisation rate implies that you are not overly reliant on credit, which sends a positive signal to lenders.
  • Ideal Rate: While there's no 'perfect' credit utilisation rate, keeping it below 30% is generally recommended as the best way to use a credit card to build credit.

How does it impact credit score?

Your credit utilisation ratio plays a significant role in calculating your credit score. It accounts for almost 30% of your total score.

  • Negative Impact: High credit utilisation is usually a red flag, suggesting that you may be too dependent on credit, negatively impacting your credit score.
  • Room for Improvement: If your credit score has taken a hit, one of the first things to check is your credit utilisation. Reducing this ratio can be a quick way to improve your credit score.

Must Read: Improve Credit Score With A Secured Credit Card

Tips for keeping utilisation low

Managing your credit utilisation effectively can go a long way in improving your credit score.

Here are some practical tips:

  • Pay Off Balances in Full Every Month
    This is the most straightforward way to keep your credit utilisation low. It ensures you start each billing cycle with a zero or low balance.
  • Increase Your Credit Limit
    If you've been a responsible credit card user, your issuer might agree to extend your credit limit. However, this doesn't mean you should increase your spending. The objective is to have a higher limit but to keep your spending the same to lower the utilisation ratio.
  • Multiple Credit Cards
    Having more than one credit card can be beneficial for spreading out your balance, thereby lowering the utilisation ratio on each card. For instance, instead of having a 60% utilisation on one card, you could maintain a 30% ratio on two.

Understanding and managing your credit utilisation can be one of the most effective ways to improve your credit score.

Keeping it in the optimal range enhances your credit profile. It increases your chances of being eligible for some of the best credit cards to build credit.

Advanced strategies

Consider having multiple types of credit, such as retail accounts, installment loans, or a second credit card like the Kotak811 Dream Different Credit Card, to improve your credit mix.


Building a strong credit profile is not something that happens overnight. However, with disciplined spending, timely payments, and regular monitoring, you can use your credit card as a tool for financial empowerment.

Whether starting with a basic card or aiming for one of the best credit cards to build credit, the principles remain the same. Be smart and disciplined, and your credit score will reflect your efforts.

Happy credit-building!