Are you someone who is planning to start their credit journey? Credit scores play a vital role in determining your credit worthiness and your eligibility for loans and credit cards. If you are new to credit, then building a strong credit score will help you get lowest interest rates and quick approvals on your borrowings in future. Let us discuss in detail how you can build a credit score from scratch.
Who are new to credit borrowers?
New to credit (NTC) borrowers are those who have never taken credit before or currently do not have credit history hence this category of borrowers lacks credit history. In general, such applicants may be given simplest forms of credit, for example, low limit credit cards or low amount secured loans.
Nevertheless, first-time borrowers usually face difficulties obtaining premium credit cards or favorable loan offers. This is because of the fact that lenders have high risk in granting loans to these borrowers as there is no guarantee that they will get money back in time.
Tips on how you can build credit score from scratch
Use secured credit cards: Getting secured credit cards with fixed deposits are one of the best methods for starting your credit journey. The amount of deposit you make is sometimes accompanied by part of the total, which becomes your credit limit. These credit cards are relatively easier to acquire and help you build your credit history if you make timely repayments.
Ensure timely bill payments: Paying back credit card bills and loan EMIs before their due date demonstrates a good credit behaviour. Lenders report your repayment activity to credit bureaus and being punctual in your repayment will help you enhance your credit score.
Never apply for credit too often: Loans and credit cards can be a great option for you but only when you really need some cash. You must note that applying for loans and credit cards too often can impact your credit score. This shows that you are really eager to get credit and might be in some financial trouble because of which you may not be able to repay the amount in time.
Understand your need: There are various kinds of credit options available in the market. Before you apply for one, it is important that you evaluate your expectations and understand your needs so that you get the best deal for you. Credit cards have different variants such as reward cards, travel cards, cashback cards, and many more. On the other hand loans too offer specific types such as car loan, home loan, personal loan and many more. Hence, choose the right credit wisely.
In conclusion, credit can be a great option if you are in need of funds. Credit cards provide you with great offers and deals and smart usage can in fact help you in having a luxurious life while spending less. However, you must understand that a high credit score can not be achieved overnight and requires constant efforts and consistency in repaying the EMIs and bills on time. With this, you can build a healthy credit score gradually.
