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How to Start Building Credit Score If You Don’t Have Any Existing Loans

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How to Build Credit History If You Don't Have Any Existing Loans

Credit Score is a three-digit rating which depicts an individual’s credit history. It has become a vital part of the banking world, since it is used to gauge the creditworthiness of an individual. Lenders swear by the credit score provided by the registered credit bureaus. While the financial services are pacing along with the technological developments in the world, there are  people who have never acquired any form of credit in their life, due to fear of getting debt-trapped or limited knowledge about the channels of credit. One of the prerequisites in acquiring a credit score is that the concerned individual should have procured some form of credit in the past. For an individual who hasn’t taken any form of credit/loan, CIBIL will give you a credit score of -1 and other credit bureaus will show No Hit or NH in place of a credit score. A healthy credit score is necessary for availing quick loan approvals and a wide range of credit cards.

Here are some of the ways in which you can start furnishing your credit history and get a credit score for yourself!

Procure a Low Limit Credit Card from your Trusted Bank

Considering that you’re drawing a reasonable salary, you can kick start your credit history with a low limit credit card with your trusted bank. Since the bank already has your personal details, it is easier to procure credit card from a bank where you already have account(s). The Reserve Bank of India reveals that in February, the credit card outstanding was 28% higher than a year ago and on an average, the credit card outstanding had grown roughly 29% in FY2017. Taking notes from the rising credit card debt and defaults in India, you must be careful while using your credit card. It is vital to maintain a low credit utilization ratio.

If you make sure that you do not over-utilize the credit available to you and make your payments regularly, then the inception of your credit history will be legendary!

Opt for a Secure Credit Card

A secured credit card requires cash collateral against the issue of a credit card. So, if you deposit 40,000 with your bank, then the bank considers the payment as collateral and it issues a credit card with the same limit. Secured credit cards are considered to be the best option for a novice. After giving a structure to your credit history through these secured credit cards, you can go for unsecured no-deposit credit cards.

Buy gadgets/other durable on an installment basis

Buying gadgets and electronic appliances via installments can also ignite your credit score. Buy a phone through EMI and make sure that you don’t default any of the payments. Assuming that the EMI runs for a year, your credit score will explicate after a period of six months.

You must remember that simply having a credit history doesn’t ensure a good credit score. Make sure that you don’t miss your minimum credit card payment and your credit utilization ratio is at a minimum level. Maintaining an excellent credit score in the long run is dependent solely on making your credit card payments on time and maintaining a stable debt to credit ratio.

The three Don’ts

Don’t max out your credit limit

A maxed-out credit card is very near or over the credit limit of a credit card. Maxing out credit limit is the beginning of the creation of a debt trap. It is common knowledge that maxing-out your credit card repeatedly is bad for your financial health and one of the primary reasons why you mustn’t do it is because it can negatively affect your credit score.

Don’t miss your credit card payments

The evil consequences of late payment of credit card dues are well known. What could happen if you make a late payment, you might ask. Here’s a list of consequences of late payment of credit card dues:

  • Your creditor(bank) will charge you a late fee
  • It will reflect on your credit report and eventually, your credit score will drop
  • The interest rate applicable to your credit card will go up

Don’t  apply for multiple credit card/loans at the same time

You might come off as a credit hungry monster who has little knowledge about how the credit channels can be maintained if you apply for multiple credit cards/loans simultaneously. With time, it will be difficult to keep track of all your sources of credit and you might even default on your payments!

How to Track Your Credit Score

After building a credit report, all you need to do is to maintain your credit score and one of the best ways to maintain your credit score is to supervise it frequently. If you wish to build a good credit score, it is advised that you must check your score once every month.

mymoneykarma presents you with a comprehensive and easy way of checking your credit report and all it takes is a few clicks. While the credit bureaus charge a nominal amount to provide you the credit score, at mymoneykarma, you can procure your credit score for FREE!

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