A good credit score can improve your chances of being approved for loans, mortgages, credit cards, and securing the best deals. But what happens if you have no credit history? Having no credit history means that the main credit reference agencies in India – CRISIL, Experian and Equifax – have no information about your borrowing habits. Because of this, you’re also unlikely to have a credit score. This situation is sometimes called being ‘credit invisible’ or having a ‘thin credit file’.
First-time borrowers, who have never availed any credit product in the past and are not availing any credit product at present as well, have no credit history. Such borrowers may find it difficult to get the best loan or credit card offers, as those instruments require the applicant to have a good credit history. They may be eligible for a few entry-level credit cards and some small-ticket loans.
Tips for first-time borrowers to build the credit score
A loan application for small ticket loans or entry-level cards might get approved for people who are new to the borrowing market, and need funds, But, if you need a big-ticket loan or a premium credit card, you need to first build your credit score to be eligible to avail the credit product. Below mentioned are a few measures that can help you gradually build your credit score.
1. Apply for Secured Credit Card
Secured credit cards work similarly to regular credit cards, but they come with some obligations. A secured credit card can be availed by opening a fixed deposit as collateral that further becomes your credit limit, which is usually 75–90% of the fixed deposit amount. The fixed deposit tenure varies by bank. You can build your credit history gradually by using a secured credit card responsibly.
2. Apply for Consumer Durable Loan
A consumer durable loan can help build credit history by reporting repayments to credit bureaus. You can purchase electronic products, home appliances, furniture, and much more.
It becomes easier for first-time borrowers to avail consumer durable loans, as compared to other lending products, such as personal loans, business loans, home loans, auto loans, etc.
3. Opt for Buy Now Pay Later (BNPL) Option
BNPL options are rapidly gaining importance, as it has turned out to be beneficial in building credit health by using them for low-price products. BNPL is a user-friendly method related to various retail transactions in which customers can make immediate purchases and pay later.
It allows you to repay in equated monthly instalments over a specific period which helps in building credit score. To build credit history using a BNPL option, make consistent, on-time payments on your BNPL loans to demonstrate responsible credit behaviour. This positive payment history can be reported to credit bureaus, helping to establish a strong credit profile.
4. Approach your bank where you have an account for a new credit card
If planning for a credit card, customers can opt for a bank where they have a salaried account or current account or business account, etc. Since the lending banks already have access to the customer’s financial history, credit card application approval becomes easy. Many banks provide new credit cards to first-time borrowers based on the salary account they manage with the bank.
5. Pay your bills on time
Paying off your loan EMIs and credit card bills on time can demonstrate that you are a credit-responsible borrower to lenders and thus can further help in improving your credit score.
Also Read: Top credit bureaus in India
6. Keep your credit utilisation low
Credit utilisation is the percentage of your total available credit that you are using. It’s calculated by dividing the amount of revolving credit you’re using by the total amount of revolving credit you have available. A general rule of thumb is to keep your credit utilization ratio (CUR) below 30%. If you want an excellent credit score, some financial experts recommend keeping your CUR below 10%.
7. Check your credit report for mistakes
Regularly inspect your credit report for any incorrect or outdated information and dispute any errors you find. Any mistake in your report can lower your credit score significantly.
8. Don’t Apply for Credit Too Frequently
You should apply for a loan only when you need it. While applying for a credit card, you should be well aware of the additional requirements such as salary or any other criteria that a provider demands for.
9. Check if you’ll be accepted first
Use price comparison sites to see which products you’re likely to be accepted for before applying. These sites typically do a soft search on your credit file, which does not impact your score.
Also Read:
- How to Increase CIBIL Score from 600 to 750
- Loan Is Closed, But Not Updated In CIBIL
- 25+ Low Credit Score loan App List
Conclusion
Having no credit history can make it difficult to access borrowing. Building a credit history takes time. Building a good credit score (750+ out of 900) shall take even more time for first-time borrowers. To build your credit, follow the above-mentioned tips. Remember, to manage your credit responsibly. That means paying on time and staying well within your credit limits. Over time, good credit management will boost your credit score, improving your chances of accessing the best credit products at the best rates.
