Digital payments are growing rapidly in India, and after linking RuPay credit cards to UPI, people have started using credit cards for even small expenses like tea, snacks, and groceries. This earns users reward points and cashback, but excessive use can also pose a financial risk. Reports indicate that credit card transactions linked to UPI are growing rapidly, and the use of credit for everyday expenses has become commonplace.
Do small transactions impact credit scores?
The number of small transactions doesn’t directly determine your credit score, but overall spending and credit utilization do. Your credit score depends on how much of your credit limit you use and whether you pay on time. If you consistently use a large portion of your limit, your bank may view it as a risk.
Making small transactions has several effects. For example:
Making small UPI transactions daily can make your statement very long.
More than 100 entries per month can make your statement very long.
The bank assesses the quality of your statement when granting a loan.
Too many small transactions can send a negative signal.
This can lead to problems obtaining a home or car loan.
It’s best to use your card for larger payments.
Making payments of ₹500 or more keeps your statement clear.
The Importance of Credit Utilization Ratio (CUR)
Credit utilization has a weighting of approximately 30 percent in your credit score. This means that how much of your limit is being utilized is crucial. A utilization rate below 30 percent is considered healthy credit behavior, while a utilization of 50 percent or more indicates risk.
Small Expenses Increase Risk
If you use a credit card or UPI for every small expense, your total spending can increase rapidly. This can quickly deplete your credit limit and put pressure on your credit score. Banks and credit bureaus may view high usage as a sign that you rely on credit for even everyday expenses.
If you make payments directly from your bank account using UPI, it doesn’t impact your credit score because it doesn’t involve borrowing. However, when the same payment is made with a credit card, it becomes part of your credit record.
Impact of Long Statement Time
While long statements don’t directly impact your score, excessive microtransactions can indicate poor spending control. Banks can monitor your spending habits and credit usage patterns during loan approval. Therefore, balanced usage is considered preferable.
Refund Problems
Refunds for credit card payments are often credited to the card account, which can be difficult for users to understand. This can make it difficult to assess actual spending and available limits.
How to Use Safely
Using a credit card is considered more beneficial for larger expenses such as groceries, tickets, or electronics purchases. For smaller expenses, using UPI Lite or a bank balance is preferable as this protects the credit limit and reduces the pressure on the score.
The Right Way to Be a Smart User
Credit cards can be a great way to earn rewards, but it’s important to use them wisely. Paying full bills on time, using a small portion of the limit, and avoiding unnecessary spending help build a good credit history in the long run.
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Rohit P
My name is Rohit Pal, and I have been working in the field of journalism for the past five years. During this time, I have written on a variety of topics, including business, automobiles, technology, and politics. I have worked with several major organizations and am currently working with Timesbull.
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