One of the most common problems that new credit users run into is the absence of a credit score. It’s a classic catch-22 situation- you need credit to get credit, but you can’t get credit when you don’t have credit. However, there is hope.
It’s possible to build a credit score even if you don’t have any credit management experience at all. The following are a few ideas that you can consider to build a credit score or CIBIL score from scratch:
Get a Credit Card
Credit cards are a lot easier to get compared to loans. This is because the risk with them is much lower for the provider, and you can even get a secured credit card in which you can deposit an appropriate amount with the card issuer to facilitate the process as the deposit becomes security.
Credit cards are a great way to build and increase CIBIL score. All you have to do is to be careful with the payments and ensure that every single credit card bill is paid on time. You also need to keep the credit utilization ratio below 30%. For instance, if your credit card limit is Rs. 1 lakh, and you are spending around Rs. 40,000 a month with the card, then the ratio will be 40% which is higher than the recommended level.
Get a Small Loan
Another good option to pick if you want to increase CIBIL score is to get a small loan. Since you don’t have any score at all, getting the loan could prove to be challenging. However, it will still be easier than getting a loan of a few lakh rupees. There are many easy and simple loans that you can get- online loans, payday loans, etc. You can also take a secured loan by offering collateral like gold, stocks, etc.
Apply for a Joint Loan
As the name suggests, a joint loan is a loan that you take with someone else. Most people who take joint loans are either couples or siblings. Here is why taking a joint loan is easier than a standard loan- the responsibility of repayment is put on two individuals rather than one. In fact, one of the co-applicants in these loans often don’t even have a decent CIBIL score but they are able to get the loan because the other applicant has a good one.
Things to Remember
The following are some of the things you need to keep in mind if you want to build a good credit score:
- Your repayment history plays the biggest role in credit score-building. So, make sure that you always pay your loan EMIs, credit card bills, etc. on time. One way to do that is to authorize your bank to automatically debit the loan EMIs from your account every month.
- Use credit cards responsibly as eating up your limit can reflect a “credit hungry” behavior. This can turn away lenders as they may think that you can’t pay for your expenses yourself and need credit all the time.
- Credit variety can help in giving your score a boost. So, if your credit history is based on a personal loan alone, then you can get a home loan or apply for a credit card to increase the variety and hence the score.
- Don’t close old credit card accounts on a whim. This is because the length of your credit history can also affect your score. Even if do have to close an account, then pick one that’s relatively newer. This will ensure that your CIBIL score is safe and protected.
Every individual starts building credit score from scratch. So, don’t fret if you don’t have any credit history- you are not the only one. Just try to find ways to open an account and then take the steps above to ensure good growth and proper maintenance of the report. Good luck!