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How do plastic money transactions impact your credit score?

Curious about Plastic Money

How do plastic money transactions impact your credit score?

In the context of India, plastic money transactions, specifically credit card transactions, can impact your credit score. Here's how:

1. Payment History: Your payment history is a crucial factor in determining your credit score. Making timely payments on your credit card bills helps build a positive payment history and improves your credit score. On the other hand, missing payments or paying late can have a negative impact on your credit score.

2. Credit Utilization: Credit utilization refers to the percentage of your credit limit that you are utilizing. It is recommended to keep your credit utilization ratio below 30%. High credit utilization can negatively affect your credit score. Using a significant portion of your available credit limit may indicate higher credit risk to lenders.

3. Credit Mix: Having a mix of credit types, including credit cards, loans, and other forms of credit, can positively impact your credit score. A healthy credit mix shows that you can handle different types of credit responsibly. Therefore, responsible use of credit cards as part of your credit mix can be beneficial for your credit score.

4. Length of Credit History: The length of your credit history also affects your credit score. The longer you have a credit card and maintain a positive payment history, the better it is for your credit score. It demonstrates your creditworthiness and responsible credit management over time.

5. Credit Inquiries: When you apply for a new credit card, the issuer may perform a hard inquiry on your credit report. Multiple credit inquiries within a short period can negatively impact your credit score. Therefore, it's important to apply for credit cards selectively and avoid excessive applications.

It's worth noting that while credit card transactions can impact your credit score, debit card transactions typically do not have a direct impact since they involve your own funds. However, maintaining responsible financial habits and avoiding excessive overdrafts or insufficient funds situations can indirectly contribute to your overall financial health, which may indirectly influence your creditworthiness.

To maintain a healthy credit score, it's crucial to use credit cards responsibly. Pay your bills on time, keep your credit utilization low, and avoid taking on excessive debt. Regularly monitoring your credit report and staying aware of your credit card activity will help you ensure that your credit score remains in good standing.

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