Building Credit Score Sans Credit History
If you’re one of those who’ve never owned a credit card or availed a loan before, guess what, you’re not alone. There are many like you out there who’ve never resorted to credit from a bank or lender ever and thus, have zero credit history.
If you’re a regular at our blog section, you would be familiar with the term ‘credit score’. To compute your credit score, any credit bureau in India needs a credit history. If you’ve not had any credit instruments in the past, don’t worry! It’s not too late to start building your credit history from the ground up by following some really simple yet effective tips.
Here are a few tips that will help you start building your credit history:
How to Build a Good Credit History?
1. Apply for a Credit Card Right Away
To avoid the moment when you set your eyes on applying for a loan in the future and start wondering about your negligible credit history, we recommend you apply for a credit card right away. Applying and maintaining a credit card is one of the fastest and safest ways of build credit history.
Most lenders and banks aren’t really willing to deal with borrowers who have no credit history.
So, in order to build credit, you got to use the credit too. Research, compare and select the banks that are open to offer you a credit card despite of no credit history. You can initially opt for a credit card with low credit limit but that will increase gradually as you use the credit.
2. Avoid the Temptation of Applying for Multiple Credit Cards All at Once
We understand your eagerness to get started with building a credit history soon but applying for credit cards at multiple places will only do you more harm than good. The reason behind that is that every time you apply for a credit card anywhere, the lender checks your credit profile and can see all credit inquiries you may have made.
This works against you as multiple applications can make you seem like a credit-hungry borrower. Every time a lender checks your credit report, your credit score takes a slight dip as well. There is no point in letting your credit score drop, more so when you are trying to build it up. The bottom line is, apply at one place where you meet the eligibility criteria and wait until you hear from them.
Also Read: Understanding Your CIBIL Score and What to Look for When You Review Your CIBIL Report?
3. Keep Spending on Your Credit Card Regularly
Like we mentioned above, to build credit, you have to use credit. Your credit score is calculated by credit bureaus and is based solely on your credit history. If you don’t have any transactions or credit history, it is impossible to build up a good credit score.
The key takeaway here is to keep using your credit card regularly for fuel, grocery, monthly spends, paying utility bills, for dining out at restaurants, and so on. Not just using your credit card, it is also important to be timely and diligent with your credit card payments. Spending regularly on your credit card will keep it active but spend cautiously to not over spend as that will increase your credit utilization ratio (discussed below).
4. Closely Watch Your Credit Utilization Ratio
Every credit card comes with a maximum spending limit also known as available credit limit. Now when you start using your credit card regularly and you’re new to the world of credit, your credit utilization ratio is computed and forms a part of your credit report.
Credit utilization ratio is the amount of credit available to you and the amount of credit you’re actually spending. This ratio is to be ideally kept under 30-40% to maintain a healthy ratio. This shows that although you’re new to credit cards, you’re not overspending and are being cautious with the spends.
If you succeed at managing the credit ratio well, the road ahead will definitely be a brighter one for you. This will reflect positively in your credit profile as a borrower who is responsible for handling credit.
5. Pay EMIs Religiously on Time & In Full
If you’re a holder of any credit instrument, you should know that the lenders submit all your credit data to the credit bureaus in India. The bureaus then utilize this information and build your credit score accordingly.
This stands for all records of payments against card bills and loans. If you’ve always been regular with your credit card payments and have never delayed or skipped one, this will reflect positively on your credit profile. Always make sure that you pay your credit card in full and before the due date.
Credit history is not built in a day but each day’s effort contributes to building a solid credit profile. It takes a minimum of 6 months to even a year (or more than that) to build a good credit score. So, if you are keen on building and maintaining a good credit score , just hang in there and follow the above-mentioned tips.
Meanwhile, once you’ve reached a significant stage in creating a credit history, keep a check on your credit score periodically to monitor it. This will help you from deviating and taking corrective measures, if need be.
If you already do have a credit history and want to take a look at it. We suggest you to Check your credit score online to get a detailed copy of your credit report.