In today’s digital payment era, UPI credit cards have emerged as a convenient and flexible way to make transactions. With the combination of Unified Payments Interface (UPI) and the power of a credit card, users can now enjoy the benefits of both systems in a single solution. But while UPI credit cards offer ease of use, cashback rewards, and a seamless payment experience, they can also influence your credit score — for better or worse.
This article will explain what a UPI credit card is, how it works, and most importantly, how it impacts your credit score so you can manage your finances wisely.
What is a UPI Credit Card?
A UPI credit card is a regular credit card that is linked to a UPI app like PhonePe, Google Pay, Paytm, or BHIM. Instead of swiping your card or entering card details, you can simply make UPI payments using your credit card as the funding source.
Key benefits of UPI credit cards include:
- No need to carry the physical card for payments.
- Pay anywhere UPI is accepted (including small merchants).
- Earn cashback or reward points just like regular credit card usage.
- Quick and secure transactions without entering card details every time.
How Does a UPI Credit Card Work?
- Link your credit card to a UPI app – You choose the option to “Add Credit Card” in the app.
- Make payments via UPI – Instead of using a bank account, the amount is charged to your credit card.
- Repay at the end of the billing cycle – Just like a normal credit card bill, you clear the dues before the due date to avoid interest charges.
Example:
You buy groceries worth ₹1,500 from a local shop and pay through UPI using your linked credit card. The shop owner receives the payment instantly, but your bank treats it as a credit card transaction.
The Connection Between UPI Credit Cards and Your Credit Score
Your credit score (CIBIL score in India) is a numerical representation of your creditworthiness. It typically ranges between 300 and 900, with higher scores indicating better financial health.
Using a UPI credit card affects your credit score in the same way as using a traditional credit card — because it’s still a form of credit.
Positive Impacts of UPI Credit Cards on Your Credit Score
When used wisely, UPI credit cards can improve your credit score in the following ways:
1. Builds Your Credit History
If you are new to credit, using a UPI credit card for everyday payments creates a track record of responsible borrowing and repayment. A good repayment history can boost your score over time.
2. Timely Payments Increase Score
Paying your credit card bill in full before the due date shows that you can manage credit responsibly, positively influencing your credit score.
3. Improves Credit Mix
Credit scoring models consider a mix of credit types — loans, traditional credit cards, and now UPI-linked credit cards. This diversity can be beneficial for your score.
4. Low Credit Utilization Ratio
If you use only a small portion of your credit limit, it reflects well on your credit profile. For example, spending ₹5,000 on a ₹50,000 limit keeps your utilization at 10%, which is considered excellent.
Negative Impacts of UPI Credit Cards on Your Credit Score
While UPI credit cards offer convenience, misuse can harm your credit score.
1. Late Payments Hurt Score
Even one late payment can significantly reduce your score and stay on your record for years.
2. High Credit Utilization
If you regularly max out your credit limit (e.g., spending ₹45,000 out of ₹50,000 limit), lenders may see you as risky, lowering your score.
3. Frequent Applications
Applying for multiple UPI credit cards in a short time leads to multiple hard inquiries on your credit report, which can reduce your score temporarily.
4. Overspending Risk
UPI payments are fast and easy, which might lead to overspending. If you can’t repay the full amount, interest charges build up, and your score drops.
Tips to Use UPI Credit Cards for a Better Credit Score
- Pay Bills in Full – Always clear the total outstanding amount before the due date.
- Keep Utilization Below 30% – Spend only a fraction of your available limit.
- Avoid Minimum Payment Trap – Paying only the minimum due keeps you in debt longer and hurts your score.
- Track Your Spending – Use UPI app statements or credit card statements to monitor expenses.
- Set Payment Reminders – Automate payments or set alerts to avoid missing due dates.
Myths About UPI Credit Cards and Credit Scores
Myth 1: UPI payments don’t affect credit score
Reality: If the payment source is a credit card, it impacts your credit report just like normal credit card use.
Myth 2: Using a UPI credit card improves score automatically
Reality: Only responsible use (timely payments, low utilization) can improve your score.
Myth 3: Closing a UPI credit card won’t matter
Reality: Closing a card can reduce your available credit limit, increasing utilization ratio and possibly lowering your score.
Who Should Use a UPI Credit Card?
A UPI credit card is ideal for:
- Salaried professionals who make frequent small payments.
- People who shop online and offline regularly.
- Those looking to build or improve their credit history.
- Users who want reward points and cashback benefits on daily spends.
Conclusion
A UPI credit card is a powerful tool that combines the convenience of UPI with the benefits of a credit card. When used responsibly, it can boost your credit score, help you build a strong credit history, and make transactions easier. However, misuse such as overspending or making late payments can harm your credit profile.
The golden rule: Treat your UPI credit card just like a regular credit card. Spend within your means, pay bills on time, and monitor your credit utilization. By doing so, you can enjoy all the benefits without compromising your financial health.