As soon as the credit card balance becomes zero, banks start thinking of reducing your credit limit. The bank feels that the cardholder may prove to be in default later. When the credit limit decreases, the credit score automatically starts decreasing..
Are you one of those people who keep their credit card balance zero? If so, then also know about its disadvantages. If the credit card balance is zero, then your credit score can go into negative and later there may be problem in taking loan etc. The only way to avoid this is to be aware of balance and usage. People may have and use credit cards, but they do not have much knowledge about credit score and it. What to do so that the credit score does not go negative. Credit card balance plays a big role in this. It should also be known that how much to keep your credit card score so that there is no problem in taking auto loan or personal loan later.
Let us know how the zero balance of the credit card affects you how much. This situation arises when you spend the entire limit of the credit card and the balance becomes zero at the end of the month. This affects your credit score as it shows that the cardholder is too expensive and does not know how to manage the expenditure. Zero balance also means that the credit card account may be inactive. This can have a serious impact on your credit health. Having zero balance reduces the revolving utilization ratio. This shows that the cardholder is facing some financial problem.
What happens when the balance is zero
As soon as the credit card balance becomes zero, banks start thinking of reducing your credit limit. The bank feels that the cardholder may prove to be in default later. When the credit limit decreases, the credit score automatically starts decreasing. This is due to the credit utilization ratio. Credit scoring agencies fix the credit utilization ratio, which shows the creditworthiness of the cardholder about taking a loan or availing credit. If the credit utilization ratio is 30%, then it is considered correct. That is, if the credit limit is Rs 1 lakh, then if you credit Rs 30,000 every month, it will work. Going above this can affect the credit score. If the credit utilization ratio is less than 30% of the entire credit limit, then an improvement in the credit score is seen.
What is seen in credit score
- If you pay the entire credit card bill in one go, then it improves your credit score by 35%
- Your credit history also plays a role of 15% in your credit score. That is, in how many days you pay your credit card bill, the score also depends on it. If the credit history is longer then it is considered good.
- If you take more credit, it can lower your score, but it plays a 10% role in the overall credit score.
- If you take a loan against a credit card to pay the bill for any goods, then it also affects the credit score.
- The credit score should not be kept at zero for a long time as banks make the card inactive, which can make your credit score negative.
How to increase credit score
If you want, you can keep your credit score positive by taking some necessary steps or buying wisely. For this you can follow the below given 5 tips-
- Make small purchases with a credit card and always
- Always pay credit card bills on time
- Always know and keep track of your credit score
- If you spend extravagantly on credit cards, then be careful and try to avoid it
- Build your own credit history and know where it is being spent
- If you keep these things in mind, then the credit score will never be negative and there will be no problem in taking loan etc. Banks will also happily give you a loan, they will not take any hesitation.
