How to Build Credit History if You Don't Have Any Pre-existing Loans

Nowadays, credit scores have become a necessity. Particularly, when you seek out new loans. The reason is your credit score, which signifies your worthiness of paying back all your credits. The score is determined based on your repayment and credit history.

However, what if someone does not have any credit card or loans or never bought anything on credit? In these scenarios, your credit score will reflect NH or No Hit. Various customers interpret no credit score as a good indication, as they have not taken any loan or credit card. On the contrary, several banks or lenders avoid giving loans or credit cards to customers who have no credit score. 

Having a credit score means that you have taken a loan or EMIs (Equated Monthly Instalment), and you are repaying it; whether in time or not, it is a whole different thing. So, if you do not have a credit score, it means you do not possess any repayment behaviour, making you a stranger to the lenders, and therefore they hesitate to lend credit.

Also Read: Things You Should Not Do With a Credit Card

Thus, the question arises, what is that these customers should do to build their credit score? Building a credit score does not have any shortcuts; still, you can start your journey as soon as you want by following the steps below: 

A Low-Limit Credit Card

Start building your credit score by taking a low-limit credit card from your salary account bank. Every month your salary gets credited, which signifies a stable source of income to the banks. Hence, they can give you a low-limit credit card. Once you get the card, start using it instead of your debit card, pay all the credit amount on or before the due date, and maintain the spending limit around 30% of the overall card limit. For instance, if you get a credit card with a limit of ₹20,000. Try and restrict your spending up to 30%, which means ₹6,000. 

Buy Products or Consumer Durables on EMI

Purchasing electronic devices or durables on EMI is another means of building your credit score. Buying a new phone or fulfilling some urgent requirement that just popped out can help you devise a good credit score. So, the next time you buy something, purchase it on EMI; repaying the bill on time will enhance your credit score. For instance, let us assume you choose to buy a mobile phone on 12-monthly investments, and you repay every instalment on time; within the initial six months, your credit score will start shaping up.

Secured Card 

Try taking a card based on your investment. Yes, some banks provide credit cards to customers based on their fixed deposits. The FD (Fixed Deposit) works as collateral if the cardholder defaults on the payment. Also, the card limit depends on the amount of investment made. Here is how secured card works, you invest ₹30,000 (assume) in the bank as FD, and the bank will issue a credit card to you with the same limit. After you get the card, maintain the repayment cycle, resulting in a good credit score. 

Once you get the card or the loan, you need to maintain an effective repayment schedule so that your credit score keeps increasing, or else the exact opposite of what you intended would happen.

Here are some tips that will aid you in maintaining your credit score: 

1. Never delay your credit card payments 
2. Never default on any of your loan repayments 
3. Do not max out on your credit limit. Always preserve a hefty credit utilization ratio
4. Make regular credit inquiries 
5. Avoid closing your old accounts or credit cards 

Whether it is an auto loan or a home loan, a new credit card or a personal loan, the credit service provider always relies on it to check your credit worthiness. Thus follow the tips mentioned above to build your credit score from scratch and devise a compelling financial future.