Here are six updated ways for individuals to build their credit score effectively:
1. Start with foundational credit tools
To begin, you should focus on acquiring a simple credit instrument. This can be a secured credit card, a basic unsecured credit card, or a small personal loan. These products help you in establishing a proper credit history when utilised responsibly. Ensuring timely payments and low credit utilisation helps in building a positive payment record with leading credit bureaus such as CRIF High Mark, CIBIL, Experian, Equifax, among others.
2. Maintain timely payments and low credit utilisation
On-time payment of EMIs, credit card bills, and loans contributes immensely to a healthy credit profile. It also helps in boosting credit scores. Further, ensuring that you keep your credit utilisation ratio under 30% of the available credit limit showcases sensible borrowing. For lenders, it is a sign that the aspirational loan applicant is not overly reliant on credit to meet day-to-day expenditure.
3. Use credit-builder loans and secured loans
Focused credit-builder loans hold loan amounts in a savings account while the borrower repays monthly. These repayments are reported to credit bureaus. Secured loans, such as gold loans, loans against property, and loans against fixed deposits, also assist in building credit with lower risk to lending institutions. As these are loans backed by collateral, this makes approval easier for beginners with no credit history.
4. Become an authorised user on an established credit account
Being an authorised user on a family member’s or a trusted individual’s credit card can boost your credit profile. This will be possible due to your association with their positive credit history, past payment record, without managing the account yourself. It will give you the much-needed protection when you are going ahead with building your credit score from scratch.
5. Report alternative payment histories
Emerging platforms now permit tenants to report rent payments to credit bureaus. This helps in converting housing expenses into a credit-building activity. This can be especially useful for young adults. The focus here is simple: to showcase consistent and responsible repayments of loans, rent, EMIs, along with other associated credit lines.
This is practiced to showcase to lending institutions that the aspirational borrower is a responsible person and is ready to make on-time repayments on any personal loan, credit cards, or any other credit lines, such as home loans, car loans, education loans, etc.
6. Monitor credit reports and avoid multiple loan applications
Consistently checking credit reports for mistakes and disputing any errors or inaccuracies ensures accurate credit information. You should also avoid frequent loans or credit card applications, as multiple hard inquiries can bring down your credit score dramatically.
Hence, in the current financial environment, establishing and maintaining a good credit score opens up doors to better credit terms. A high credit score can make home loans, car loans, personal loans, and other credit lines easier to secure. This reinforces the importance of composure and discipline in financial behaviour.
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Disclaimer: Mint has a tie-up with fintechs 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 scores. 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.
