Understanding credit score
To begin, you obviously will need income to borrow money right? To really unravel that question you will have to realise creditworthy has less to do with income – and more with repayment behaviour and transaction history.
Starter tools for income-free credit building
Students can fully take advantage of the following financial tools:
Rohit Chhibbar, Chief Business Officer, Credit Cards, Paisabazaar explains his opinions on how a student can build their credit score without income he quoted, “An individual with no income source can begin building a credit score, be it a student or any other unemployed individual. The best option here is to opt for a secured credit card that is issued against a fixed deposit.”
“Using this credit card only for small, manageable expenses and paying the bill on time every month can help a student build a strong credit score over time. It’s important not to borrow more than what one can repay, as building credit is about consistent, responsible use over time,” he added.
Fees and charges
While exploring the credit-building resources, be mindful of:
- Issuance/deposit costs: Secured cards can have processing costs of 1% to 3% of the secured card value.
- Annual/maintenance fees: Secured and add-on cards sometimes come with a low annual fee.
- Interest costs: Credit-builder loans usually have standard loan interest of 10-14% per year.
- Fees for late payments: If you do not pay your EMIs – add-on fees of 300 to 1000 rupees can apply.
Monitoring your progress
Every few months, check your credit report for new entries for loans or cards (indicated as open with good standing) and the advancement in credit age or time, no new defaults or overdue flags, etc. For best growth, combine secured cards with rent reporting, or a small credit-builder loan.
In conclusion, with time, effort and small financial decisions, students can raise their credit scores regardless of income. The important things to remember is to make all payments on time, track your performance, and be smart with credit instruments. After all, smart money management is more important for good credit than income.
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Disclaimer: Mint has a tie-up with fin-techs for providing credit, you will need to share your information if you apply. These tie-ups do not influence our editorial content. This article only intends to educate and spread awareness about credit needs like loans, credit cards and credit score. Mint does not promote or encourage taking credit as it comes with a set of risks such as high interest rates, hidden charges, etc. We advise investors to discuss with certified experts before taking any credit.
