Did you know that UPI (United Payment Interface) is the single largest payment platform in India; June 2022 transaction volumes crossed Rs.10 lakh crores. From its humble beginnings in 2016, UPI payments have grown by leaps and bounds, to become the common man's preferred payment method.

UPI offers various payment options to its users - linked with numerous payment providers like Paytm, Google Pay, Phone Pe, and more, they allow users to link their bank accounts and credit cards with their UPI interface.

While most people use UPI to pay directly from their bank accounts, using credit cards to make payments is also a common practice. With most shopping now done online, using credit cards to pay through your UPI app has its own benefits.

Did you know that using credit cards to pay on your UPI can help you improve your credit score?  Yes, it does.

Your credit score is a key factor in determining your credit worth. Lenders seek this score before approving any kind of credit to you. The lending market does not stop at traditional loans and credit cards, it has now grown to instant loans, Buy Now Pay Later options, online overdraft facilities, and more. 

The primary benefit of paying through your UPI with your credit card is that it improves your credit utilization. When you use your credit card to make a payment, your credit utilization ratio improves. This in turn improves your credit score. So, prudently using your credit card with your UPI to boost your credit score is a great idea.

For someone with a low credit score or a very young credit history, this facility gives more opportunities to use their credit card and build their credit score.

Additional Read: 8 Smart Ways To Use A Credit Card Your Build Credit Score

Another advantage of using your credit card to pay through UPI is, you get a lot of discounts, rewards and cashbacks. For example, whenever you use a credit card on your UPI app to recharge your mobile phone, or pay for electricity bills, or any other bills & utility payments, you are assured of cashbacks and other discounts. This is an added incentive to link your credit card with your UPI app and start using it. 

Also, UPI has become so universal these days that most vendors, from your street side pan wallah to e-commerce giants, everybody accepts UPI. So, your credit card utilization ratio improves gradually, thus improving your credit score. 

A few disadvantages of using credit card with your UPI 

For one, the payment app would charge a transaction fee for paying through credit card. This ranges anywhere from 0.5% - 2%. So if you are making a large transaction, your fee will also be a considerable amount. 

You cannot use a credit card with UPI directly at merchant establishments. You are generally required to upload money to the payment app's wallet, which is then used to pay at merchant locations. And payment apps again charge a transaction fee when you load money to their wallet using a credit card. That is a huge deterrent to people choosing to pay using a credit card with their UPI. 

You might end up spending more than you can repay due to the convenient nature of the payments. This may lead you into a debt trap if you are not prudent with your spending. 

To sum it all up - 

Using a credit card with your UPI is surely a great way to improve your credit score, but given the high transaction charges, people are discouraged to do so. Also, building credit is not instantaneous; it is a disciplined process that requires time and commitment. While this is a great option, users should honestly change their spending habits and credit usage pattern if they want to achieve a stellar credit score. So here are some other things you should follow to get a great credit score –

Maintain a close eye on your credit report

You should check your credit report on a regular basis to improve your credit score. You will learn about the errors in your report this way. If you discover flaws in your report, you can have them fixed right away. Because the credit score is calculated based on the information in the credit report, you must correct it as soon as possible. It is critical to ensure that the credit report is error-free.  

 Prevent making late payments

Make certain that your loans and credit card bills are paid on time. Set up alerts for loan and credit card repayments if you believe you will miss them. It's also a good idea to pay the bill before the due date. Every month, the credit bureau monitors the payment pattern and calculates the credit score based on it. You can significantly improve your credit score if you begin paying your bills on or before the due date.

Pay any outstanding bills

If you have any outstanding credit card bills or loans, you must pay them off immediately in order to repair or improve your credit score. A credit history of missed payments will result in a low credit score. It is a good idea to set up payment alerts or auto-debit facilities to ensure that you pay your credit bills or EMIs on time. Also, try to pay your credit card bills in full rather than just the minimum.

Do not discard old credit cards

You may have a habit of closing old credit cards after you have paid them off. However, do not do so while they are still open. This will provide you with a long credit history, which may account for up to 15% of your credit score. However, you should proceed with caution because the lender may close your credit card if it is inactive, and they may also charge an annual fee for this. 

Don't take out too many loans or credit cards

Applying for loans frequently indicates that you are desperate for credit, which will lower your credit score. For the same reason, applying to multiple lenders and then choosing the one who gives you a loan is not a good idea.

FAQs of How UPI on credit cards can help you improve your credit score

1:What constitutes a good credit score?

In general, credit scores ranging from 580 to 669 are considered fair. Those with scores ranging from 670 to 739 are considered good, and those with scores ranging from 740 to 799 are considered very good. If your credit score is above 800, you have excellent credit.

2:What is the most efficient way to repair bad credit?

Pay your bills on time and keep your credit utilization ratio low

Be wary of applying for new credit

Consider getting a secured loan

Have a healthy credit mix

3:What is a Credit Mix?

A Credit Mix refers to a healthy balance of secured and unsecured loans on your credit portfolio. 

4:What is considered a good credit utilization ratio?

A credit utilization ratio of 30% is considered good for a healthy credit score. 

5:Where can I get my latest credit score? 

You can get your latest credit score, along with a detailed analysis of your credit report, from Creditmantri. Click here to learn more about your credit health from our experts.