How to Build a Credit History from Scratch in 2021
Credit cards have become an essential part of our daily lives. It has become one of the most important pillars of the banking & finance sector in India. The reason being the rise in demand for flexible credit options. Today, the average millennial is earning more than what people would earn in past decades, which means they are constantly scouting for the best credit cards in India. This means people are also trying to chew more than they can bite. The expenses are high, and the income is competitive, and this has driven them to apply for a credit card online.
This has given rise to the demand in credit cards and other loan products. It has now, become a general trend to opt for a credit card once the average millennial starts of his/her career. But, does this mean that the credit market has taken over the country and that there is hardly anyone who hasn’t opted for a credit card yet? Well actually, it is far from the truth because India is the second largest population in the world and there are just too many people living in the country, 1.3 billion of them, maybe a bit more than that! The point is there are many people in this country who haven’t really opted for a credit card ever.
So how will a new borrower build a credit history if they do not have any pre-existing credit or loans? Today we are going to discuss how you can build a credit history from the scratch!
Also Read - IS Credit Score Necessary for Personal Loan?
Get yourself a new Credit card with a lower limit
Let’s assume you’ve got a new job, and the company provides you with a salary account. Now, that the bank has details of your income and your job profile. So, acquiring a credit card with this bank will be a much easier process as they already maintain your salary account. What you can do is opt for a low-limit credit card with the bank and handle it responsibly.
Once your card has been activated you need to make sure that you use this card to make a few purchases here and there and make the payments on time. The activity on your credit card will help you with a credit history. You also need to know that there is a credit utilization ratio which you need to maintain in order to have a desirable credit score and clean credit report. So, don’t eat up a major chunk of your credit limit and always make your payments on time.
Go buy yourself something
In order to have a desirable credit score and a lengthy credit history you need to have relevant activity on your credit card. So, why sit idle when you can build credit by getting yourself a new gadget or maybe a piece of clothing you’ve been wondering to buy ever since you saw it in the stores or maybe get your loved ones something they desire. After you buy something, you can request the bank or lender to convert the expense into EMIs as it helps you build a desirable credit score. So, let’s assume you convert your expense into a 12-months EMI cycle, you will notice that your credit score has started taking shape as you reach your sixth-seventh installment.
No credit score is still better than a bad credit score
Starting with no credit score at all does not mean that your score is null. This simply means that your score doesn't exist yet. This is because your credit score is calculated only after your lender or credit card issuer requests the credit rating agencies to check your creditworthiness. If you don’t have a credit history, there is no information on your credit report yet. Once you start setting up a credit history for yourself, it is not like your credit score will start off at something as low as 300 unless you start off with extremely poor credit habits. Nor can your first credit score be the highest when you're just starting off, because it is simply not possible. So, your focus must only be on building a score rather than worrying about your credit history as a first-timer.
Adopt good financial habits
For starters, you need to adopt good financial habits as a beginner. You need to understand that once you have moved on to become a defaulter in the future, you might never get another opportunity to start off with a clean credit report. So, the first impression becomes the last impression. Abide by a few rules, and you will never have to worry about applying for new credit:
•Do not miss your payments, they have a negative impact on your credit score and eventually banks and lenders
•Do not eat up a major chunk of the credit limit provided to you, remember that using up to 30% of credit from the total limit is an ideal limit to attain trust from your lender
•Start building your credit by making payments through your credit card, regular activity on your credit card helps you build a lengthy history
•Be a responsible borrower and keep a check on your credit score to identify the loopholes in your credit report, if any.
Go for a Secured Credit Card
Secured credit cards are the easiest way to build your credit score if you are a beginner. All you have to do is to apply for a secured credit card and deposit funds proportionate to the credit limit you want on your credit card. The bank will then issue you the credit limit for the amount you have deposited. For ex – If your Deposit is INR 20,000, your credit limit will also be INR 20,000.
Track your credit history
When you are done with all the above steps, you need to make sure that you are keeping a check on your credit score. Without checking your credit score, you will have no idea of your status on the credit report. There can be fraudulent transactions, loopholes you have not encountered before and factors which have an impact on your credit score. So, before you apply for credit card online, get yourself a free credit score check.
If you follow all the above practices, you will never have to worry about your credit history ever again! Tell us in the comments below, what you think about this blog and if you want us to write more such stuff.