Manage Money

How to Build Credit History from Scratch

Your credit score is central to getting loans and credit cards. Need an emergency loan? Well, you need to have a high enough credit score. Want a credit card? You need that too. In fact, not having a high enough Credit Score and applying for loans will only damage whatever score you already have.

But how can you get loans and credit cards if you don’t have a Credit Score to speak of, or when the score is quite low? In this article, we are going to show you how you can increase the score. But understand that this is not magic. Your score won’t reach new heights overnight. It’s going to take time, but if you show sustained effort, you’ll get there!

Get a low-limit card from your bank

This is one of the best ways to build up your credit score. Get a low limit card from the bank where you already have an account. They will be most likely to give this to you when you are starting out. Now, since the card has a low limit, you are not borrowing much, and thus you won’t have much trouble in repaying the card. This easily builds up your credit score.

Pay off your bills and dues and always remain under 30% of the credit utilization ratio

That being said, it is also important to use the card responsibly to start with. Don’t use it to buy anything you come across. Don’t use it to buy high-priced items which you know you’ll find it hard to repay. Pay off your bills and dues and always remain under 30% of the credit utilization ratio. Keep doing all this for 6 months and you’ll see your credit score increasing.

Get a secured card or a secured loan

To get a secured card, you place a monetary deposit with the bank as security. When taking a secured loan, you give a more physical security like property. In both cases, you are more likely to get these lines of credit since these are of less risk to the lender. When such loans are approved for you, always pay the EMIs on time, and even before the time if you can manage it. All of your actions shall be reported to the Credit Bureaus, who in turn shall determine your Credit Score.

Buy something in installments

Wanted to buy that luxury item? Well, go ahead. Buy it with a loan, and then start repaying it back on time. But make sure it is something you won’t have any problem in repaying at all. 

 Now that you are seeing your Credit Score increase, it is important to maintain it. To ensure that you do this, make sure that you:

  • Don’t delay payments and EMIs

  • Don’t ignore bills

  • Don’t reach your credit utilization limit

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