Building a good credit score as a student is crucial for securing financial opportunities like education loans, better loan terms, and premium credit cards. Starting early helps establish a strong financial track record, making it easier to secure favourable loan rates and terms. Responsible repayment of education loans and strategic credit use can lay the foundation for long-term financial independence. Here are some practical steps you can employ to build and maintain a good credit score.
Here are simple strategies you can employ to build your credit score as a student:
A secured credit card is a great way to begin building your credit profile. These cards are backed by a fixed deposit, making them low-risk for banks. Use it for small, manageable expenses, and always pay the bill in full and on time to establish a positive credit history. You can also opt for student credit cards which especially cater to those pursuing higher education and need a credit instrument to manage their expenses.
If you’ve taken an education loan, ensure to pay your EMIs on time. Consistent repayment boosts your credit score and builds a track record of financial responsibility, which lenders value highly.
Credit utilisation refers to how much of your credit limit you use. Aim to use less than 30% of your credit limit to show lenders that you’re not overly reliant on credit. For instance, if your limit is ₹50,000, try to spend no more than ₹15,000 at any given time.
If a parent or sibling has a good credit history, you can request to be added as an authorised user on their card. This helps you benefit from their positive payment history, boosting your own credit score.
On-time payments are the most significant factor in your credit score. This includes not just loan or credit card payments but also utility bills, phone bills, or any other recurring expenses.
Use free tools to check your credit score and report periodically. Look for inaccuracies, such as loans or credit cards that you didn’t apply for, and dispute any errors with the credit bureau.
Avoid applying for multiple credit cards or loans in a short period. Each application results in a hard inquiry, which can lower your credit score. Instead, space out your applications and only apply for what you need.
Consider taking a small personal loan for necessary purchases like a laptop or study materials and repay it on time. This helps establish your creditworthiness without straining your finances.
If you have an existing credit card, keep it open even if you no longer use it. A longer credit history positively impacts your score.
Always ensure your bank account has enough funds to cover standing auto-debit instructions for payments. Bounced payments can negatively affect your credit score.
Create a budget to track your expenses and stick to it. Financial discipline helps avoid unnecessary borrowing and ensures you meet your financial obligations.
Provided below are some common things you should avoid as a student to build and maintain your credit score:
Late or missed payments can severely impact your credit score. Always ensure you pay at least the minimum due amount on time.
Maxing out your credit card or taking on too many loans can lower your credit score. Stick to manageable limits.
Not checking your credit report could mean missing errors that can negatively affect your score. Reviewing your reports also enables you to identify fraudulent activities if any.
Too many credit inquiries in a short period can make you appear credit-hungry, lowering your score.
Closing old accounts can shorten your credit history, reduce your available credit, increase your credit utilisation, and harm your score.
Building a good credit score as a student requires discipline, planning, and awareness. By taking small, deliberate steps like paying bills on time, monitoring credit, and avoiding financial missteps, you can establish a strong credit foundation for your future. Start early, stay consistent, and watch your creditworthiness grow steadily.