If you are one of those rare souls who have not taken any credit at all so far, you deserve a pat on your back. In today’s increasingly consumerist world, having such restraint is something to be proud of. But is it sensible? We say no.
Credit score, a compilation of your credit behavior (credit card use, bank loans etc.), says it all. It helps lenders to asses one’s creditworthiness. If all these sound like Greek and Latin to you, you probably do not have a credit score because there is no credit history to begin with.
Credit score can be built. Our goal is to help you create a bankable credit history so that you can benefit out of it. It might seem a herculean task, but it is not as difficult as you think. It’s all about using your credit responsibly (no late payments or defaults) and being patient because building credit history takes time.
Possible No-Credit-History Scenarios
Say you bought your first credit card a couple of months ago. Don’t expect a miraculous credit score. The Credit Information Bureau (India) Limited or any other credit bureau in India mandates your account to be active for at least six months before giving you a score between 300 and 900.
You may own umpteen accounts. But you will not have a credit score, if they have remained inactive for months (or years).
News Flash – You need Credit Score Anyway
Just because it is hypothetically possible to survive without credit doesn’t mean it is wise. Let us tell you why.
Home Loans: Home ownership is one of the most common and quintessential ‘Indian dream’ and a 700+ CIBIL score can make all the difference when you look for housing loans. Not only will lenders line up to put you in their customer base, but they will also be offer incredibly low-interest loans.
Car Loans: Who would want to rely on public transport when they can easily own a vehicle by making a small down payment? Automobile loans exist to give wings to that dream. Here too, credit history is imperative. Most lenders hesitate to finance your car if your score is less than 750 or don’t have a credit history to begin with.
Personal Loans: Life is an expert at throwing emergent expenses at you when you expect it the least. Fintech companies, specializing in quick personal loans, are gaining immense popularity for this very reason, especially in metropolitan cities like Bangalore, Chennai and Delhi. Now they may not be as strict as traditional banks when it comes to CIBIL score criteria and credit history, these are mandatory all the same.
Entertainment: You might know many people who fund bulk of their movie tickets, concert tickets, dining, air tickets and hotel bookings, among others, with credit card reward points and cash backs alone. It makes you green with envy, right? Some use these extras to pay off interests too. It’s just a matter of ‘playing your cards’ right.
Shopping: Swipe to shop is the new cool and don’t the customers love it? The perks of credit card shopping are numerous. Your purchases are automatically insured, you are protected against fraudulent transactions and of course you earn cash points with every INR100 spend, which you can redeem later.
Finally, lost credit cards can be deactivated and replaced while lost money is gone for good.
How To Create A Credit History?
For the customers who are beginners, it is important to build credit history before applying for any loan. It is recommended that he/she should have a mix of different types of credit like credit cards (at least 3), unsecured loans like personal loans and secured loans like gold loan or car loan to begin with.
A Few Pointers To Remember:
Don’t eye the biggies yet. It is quite possible for credit card companies like Citi and ICICI to ruthlessly deny you ‘good’ (yes, ones with all the offers and high spending limits) credit cards, if you approach them with an empty credit sheet. First, give them reasons to trust you.
Do not even enquire, let alone apply, at this point. Multiple rejections can pull down your score drastically. Instead, go for a not-so-shiny secured card to build your credit first.
Getting a perfect payment history is more of a straightforward game than a gamble. Do not muff with the repayment or let the card collect dust. How can you show them that you are a responsible credit user, unless you use it?
Restrict yourself to three or four purchases a month if you are wary. Or keep it to buy only fuel. Remember, your aim is to build a drool-worthy (for banks) credit history.
Patience (lots of it) is the key, at the risk of sounding preachy. It will take eight to 12 months to achieve this. Do not fall for fake promises (700+ score in 2 months!).
Unfortunately, people sitting at credit bureaus are quite smart and it is practically impossible to fool them.
Whatever you do, never miss a payment. Credit bureaus do not forgive easily for this. You need an absolutely clean chit from the credit bureaus to bargain for the best credit card in the market.
Summing It Up:
A healthy credit report from CIBIL, High Mark Credit Information Services, Experian or Equifax can only benefit you — whether you plan to make some high-end purchases or wish to reap what you have sown (spent). Don’t you think it’s high time you get a grip on your finances?