Your credit score is a crucial factor that determines your creditworthiness and the likelihood of getting approved for loans, credit cards, and other financial products. A good credit score not only helps you to avail of credit at favorable interest rates but also opens up several opportunities for you. If you are new to credit, building a good credit score can be challenging.
In this article, we will discuss some effective ways to build a good credit score from scratch in India.
Ways to Build Your Credit Score from Beginning
Apply for a secured credit card
A secured credit card is a credit card that requires you to make a security deposit against the credit limit. This type of credit card is an excellent option for those who have a limited credit history or a poor credit score. By using a secured credit card responsibly, you can establish a good credit history and gradually build a good credit score. Make sure to make all your payments on time and keep your credit utilization low.
Become an authorized user
Becoming an authorized user on someone else’s credit card can also help you build a credit history. When you become an authorized user, the account activity is reported on your credit report, and you can benefit from the positive credit history of the primary cardholder. However, make sure that the primary cardholder is responsible and makes all the payments on time.
Take a credit-builder loan
A credit-builder loan is a loan that is specifically designed to help you build credit. In this type of loan, the lender holds the loan amount in an account and releases it to you once you have paid off the loan. By making timely payments on the loan, you can establish a good payment history and build a good credit score.
Pay your bills on time
Paying your bills on time is one of the most critical factors that determine your credit score. Late payments can have a significant negative impact on your credit score, and it can take several years to recover from it. Make sure to pay all your bills, including credit card bills, utility bills, and other loans, on time.
How To Achieve And Maintain A Good Credit Score?
Monitor your credit report regularly
Monitoring your credit report regularly is crucial to maintain a good credit score. It helps you identify any errors or discrepancies in your credit report and take corrective measures to fix them. You can get a free credit report from any of the credit bureaus in India once a year.
Keep your credit utilization low
Your credit utilization is the amount of credit you use compared to the credit limit available to you. Maintaining a low credit utilization ratio (preferably below 30%) is essential to maintain a good credit score. Using more than your available credit limit can indicate that you are financially overextended and can negatively impact your credit score.
Don’t close old credit accounts
Closing old credit accounts can hurt your credit score. It can reduce your available credit limit, increase your credit utilization, and shorten your credit history. If you have old credit accounts, keep them open and use them responsibly to maintain a good credit score.
Avoid applying for too much credit at once
Applying for too much credit at once can negatively impact your credit score. Every time you apply for credit, the lender pulls your credit report, which results in a hard inquiry on your credit report. Multiple hard inquiries can indicate that you are a credit risk and can lower your credit score. Apply for credit only when you need it and not too frequently.
Related FAQs
Q1: What is a credit score?
A: A credit score is a numerical representation of an individual’s creditworthiness. It is calculated based on their credit history, payment behavior, and other factors.
Q2: How is credit score calculated in India?
A: Credit score is calculated by credit bureaus such as CIBIL, Equifax, and Experian. They take into account factors such as credit history, payment behavior, credit utilization, and credit mix to calculate the credit score.
Q3: What is considered a good credit score in India?
A: A good credit score in India is typically considered to be between 750 and 900. A score above 750 is considered a good credit score and indicates creditworthiness to lenders.
Q4: How can I build a good credit score from scratch in India?
A: To build a good credit score from scratch in India, you can start by getting a credit card or taking out a small loan. Use the credit responsibly and make sure to make payments on time. Keep your credit utilization low and maintain a good credit mix.
Q5: How long does it take to build a good credit score from scratch in India?
A: It typically takes around 6-12 months to build a good credit score from scratch in India. This depends on factors such as your credit history, payment behavior, credit utilization, and credit mix.
Q6: How often should I check my credit score in India?
A: It is recommended to check your credit score at least once a year in India. This will allow you to monitor your credit score and identify any errors or discrepancies that need to be corrected.
Q7: Can I improve my credit score quickly in India?
A: It is possible to improve your credit score quickly in India by paying off outstanding debts, reducing your credit utilization, and making payments on time. However, it is important to note that building a good credit score takes time and effort.
Q8: Can I get a loan or credit card with a bad credit score in India?
A: It may be difficult to get a loan or credit card with a bad credit score in India. Lenders typically prefer to lend to individuals with a good credit score as it indicates creditworthiness. However, some lenders may offer loans or credit cards with high-interest rates to individuals with a bad credit scores.