Can a virtual credit card help build your credit score? Here’s the truth
The nation’s shift towards digital payments has resulted in virtual credit cards becoming increasingly popular, providing instant availability of credit, enhanced security, and seamless integration with e-commerce platforms.
Recent official data underscores this momentum. In FY2024-25, the Unified Payments Interface (UPI) handled a record 18,587 crore transactions amounting to ₹261 lakh crore in value, representing a 41% year-on-year surge.
Furthermore, UPI now accounts for more than 83% of the nation’s digital payment transaction volume, leading the world in real-time payments and powering the rapid shift towards a cashless ecosystem.
It is important to keep in mind that UPI’s dominance drives the virtual credit card ecosystem by making digital credit seamless and widely accessible. These credit instruments, powered by UPI’s infrastructure, are key to the nation’s cashless future. Still, using them wisely and cautiously is essential to avoid debt issues and ensure a positive credit experience.
Virtual credit cards and their impact on your credit history
The direct impact of a virtual credit card on one’s credit history is nuanced, as it depends on how one uses the credit card.
- Virtual credit cards are generally linked to an existing credit card account rather than being a standalone credit facility. That is why their impact on credit histories is indirect in nature.
- Usage of a virtual credit card is reported on the original credit card statement; thus, timely repayments on the underlying account contribute to building a credit score. Whereas if credit card bill payments are missed or delayed, then this is a massive negative for the holder’s credit score.
- Obtaining a virtual card does not itself begin a new credit record. The history gets built through responsible use and payments on the main (physical) credit card. That is why, simply put, virtual credit cards have no direct impact on credit scores. It is the way they are used that makes the real difference.
- Most lenders and credit bureaus review your primary credit facilities, so credit-building from a virtual card depends on the parent account’s conduct. If payments are made on time and the borrower ensures responsible financial behaviour, then this will have a positive impact on their credit profile.
Security and regulatory framework
The Reserve Bank of India has set comprehensive guidelines for credit card operations. These guidelines are updated on a regular basis as the nation continues to make technological advancements in payments and digital infrastructure.
Guidelines include instructions such as mandatory two-factor authentication for virtual cards, tokenisation to replace sensitive data, and clear consumer protection measures. Light is also thrown on keeping a check on the fundamental right of privacy of every consumer.
Key facts for virtual credit card applicants to keep in mind
- Virtual credit cards basically help in managing online spending and securing transactions rather than directly establishing fresh credit records.
- Consistent and disciplined use of the underlying credit card account, such as paying credit card bills before the due date and keeping credit utilisation low, is vital for credit-building.
- Many leading banks now offer instant virtual cards to applicants, ahead of physical delivery. This means borrowers can start their credit-building journey faster, provided they responsibly manage the parent card.
- For those with no prior credit history, using secured or FD-backed credit cards alongside virtual cards is often more effective in establishing a solid credit score and a clean credit profile.
- That is why you should always focus on tracking monthly statements (including virtual spends) to detect errors or fraud and promptly report any discrepancy to your respective credit bureau if you find any glaring mistakes.
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Disclaimer: Mint has a tie-up with fintechs for providing credit; you will need to share your information if you apply. These tie-ups do not influence our editorial content. This article only intends to educate and spread awareness about credit needs like loans, credit cards, and credit scores. Mint does not promote or encourage taking credit, as it comes with a set of risks, such as high interest rates, hidden charges, etc. We advise investors to discuss with certified experts before taking any credit.
