Credit Cards are more than just a way to pay for everyday items like appliances, gadgets, or online shopping. They also help you build a record of how you manage money.
A strong transaction history shows banks that you can borrow and repay responsibly. This can make it easier to get loans, higher credit limits, or even another Credit Card in the future.
Read on to learn more about how using a credit card wisely can strengthen your financial profile.
What do you mean by transaction history?
Your transaction history refers to the complete list of all the transactions that you made in a given period. For instance, your Indian Oil Credit Card transaction history would reflect the payments you made at the fuel stations using the card.
How do Credit Cards help you build a transaction history?
Using these cards for transactions impacts your credit utilisation ratio, bill repayment frequency and credit history length. It also affects your applications for new cards and your healthy credit mix, as seen below.
Credit utilisation ratio
Your credit utilisation ratio refers to the ratio of the amount you spend to the total credit limit available and is usually calculated in percentage terms.
An ideal credit utilisation ratio should ideally be below 30%. This ratio shows that you are using your Credit Card but not depending on it.
If you have a credit utilisation ratio higher than 30%, then you could risk a low credit score. It indicates that you are relying too much on borrowed money, which may signal risk to lenders and reduce your chances of getting future loans or credit cards.
Credit Card bill repayment frequency
The frequency of your bill repayment is also an important part of your transaction history. Paying your credit card bills on time helps you avoid penalties such as late fees or extra charges. It also shows that you are a responsible borrower, which can make banks more likely to trust you with premium cards, like the Indian Oil Credit Card, for example. Another benefit of paying your bills frequently on time is a good credit score. A strong credit score can help you easily apply for a loan or purchase a high-value object without any issues.
Credit Card ownership
Your Credit Card ownership refers to the amount of time for which you have owned and used the card. If you use your card for a long time, you will have a long transaction history. Additionally, not using your card for a long time can lead to its possible restriction or deactivation. So you should use it occasionally to keep it active.
Healthy credit mix
Your credit mix refers to a mixture of unsecured and secured loan types. Unsecured loans refer to Personal Loans, Education Loans and Credit Card loans, which are not backed by security as collateral.
On the other hand, secured loans refer to those secured by security as collateral and involve home loans or automobile loans.
If you are successfully able to manage both these types of loans by paying them on time, it shows a healthy credit mix.
Conclusion
It is easier to apply for a new Credit Card if you have a decent transaction history. This will only be possible if you maintain a healthy credit utilisation ratio, bill repayment schedule and ownership length.
All these factors will collectively impact your credit score, which should ideally be between 750 and 900. Having a healthy credit score will allow you to apply for loans easily in the future.
