What is that one issue that almost everyone faces during their first job hunt? Every company wants to hire someone with prior experience but how will one get experience if no one is ready to hire a fresher? Building a credit history is similar. If you need a loan, then the bank needs your credit history but how one can establish a credit history if he/she has not lend money till now? It is a vicious circle.
Even in this vicious circle, there are few loopholes. This way, you can take the first step into the world of credits. However, it is always advisable for the first time credit builders to look for available options, take their time, understand the details and then decide the way of starting the credit history.
For those who are wondering that having a zero credit history is good? Well, not really! Banks and financial institutions will check your credit score as soon as you apply for any loan (especially unsecured loans). In case, you have zero credit score, then they might be hesitant to lend you money as they are not sure whether you will be able to pay the money on time. That’s why, having a good credit history and high credit score is important for anyone to get a loan easily and at considerate rate of interest.
Ways To Build A Sound Credit History
For the first time credit builders, following options are available that will help you create a sound credit history:
Apply For A Credit Card
Majority of people start their credit history by taking a credit card. Many banks offer credit cards against your fixed deposits. Since, your credit card limit is secured by the fixed deposit amount, the bank does not need your credit history to approve such cards. Start using this card and pay the bills on time in order to create and maintain a healthy credit history. Once you build one, you can then apply for unsecured credit card or loans. Other than paying bills on time, make sure you utilize available credit as low as possible. It is recommended to use less than 30% of the available credit in order to have a good credit score.
Get a Joint Credit Card
In case you are unable to get a credit card of your own, you can become an authorized user on someone else's account like your parents or spouse.
Take Small Loans
Since you don't have any credit history, you might not qualify for large loans. However, you can apply for small loans given that you have a suitable and constant income. Once you take this loan, ensure that you make loan repayment on time and develop a good credit history.
Consider A Guarantor
If you are in financial crisis and need a loan urgently, then you can get a loan using a guarantor with good credit history. Ensure that after you take this loan, repay it on time or it might have a negative impact of yours and the guarantor's credit score.
What To Do Next?
Once you take a step ahead in building your credit history, make sure that you build a healthy one. Here are some of the best practices that can help you maintain a good credit score
- Pay credit card bill and loan installments on time
- Maintain a good credit utilization ratio. (use 30% or less of your available credit)
- Do not apply for too many credit card or loans in a short amount of time.
- Get your credit score and report from CIBIL or online marketplaces for free just to keep a check on it.
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