Best Way to Start Building Credit

Best Way to Start Building Credit

Fresh out of PG college, Amol Ghodbole was raring to start his career in IT. A bright student he was and was instantly picked off campus by his company. Six months after inception into the corporate world, when Amol Ghodbole contacted us, he was in quite a mess. He was not sure why his credit card application was rejected again and again. His was a case of identity theft. He barely stepped into the credit world but had a long credit history, he had no clue about. He is all sorted today and is doing well in career and finances both. Thanks to our credit solutions he was able to build his credit.

On our blog, we have many a times emphasised and reemphasised the importance of credit in the credit world. Honestly, we can’t emphasize it enough. In today’s age, to move even inches closer to fulfilling your aspirations, you have to depend on some or the other form of finance. When you ask for a loan or apply to use a credit facility at your bank, the first thing that features in your banker’s list is to cross check with Credit Information Bureau India Limited (CIBIL) about your current credit report. The credit report is a summary of your past credit history. That is how much of credit have you used up till now, how well have you been able to service those advances and penalties on late payments or defaults if any. At a glance of it, any lending institution will be able to gauge your “probability of default”. Any person’s application, whose likelihood of default is higher, will not be able eligible for further loans. But a person with a good credit background and with sound credit discipline will certainly be favoured for further business with banks.

Unfortunately, such was not the case of Amol Ghodbole. His story inspired us to share with our readers, the finest ways to work on building your credit or to enhance credit score. Just follow some very basic steps as laid down here and you will never have to worry about it again.

  1. Check Your CIBIL Report: Whether you have just commenced your journey in the credit space or you are an old horse, never forget to take a look at your CIBIL score. Experts advise that we must ask for our report atleast once annually or atleast six months before applying for a loan. This is to identify any misrepresentations in the report, of which you may not have any knowledge. Any correction process will take 30 to 45 days to reflect. In Amol’s case, his details were being used to take loans without his permission and knowledge. Those loans were poorly serviced impacting his score negatively. This is why his application was repeatedly rejected.

  2. Maintain adequate balances in your bank account: Although, the balances in your bank accounts will not feature in your report but a charge for a cheque bounce due to non maintenance of minimum balance or any overdrafts will certainly find its way on your report. Such mishaps will throw a negative light on your creditworthiness. Remember, banks like to do business with responsible borrowers.

  3. It’s a good practise to be on time: Make it a point to pay all your bills on time. This will mean that no late fees or penalties are levied towards your account thereby showing that you are a conscientious seeker of funds. It also decreases your chances of default on any future financial liabilities.

  4. Get yourself a guarantor: If you are someone who is just starting seeking funds, then your credit report should read as “NA” or “NH” which means no credit history. In such a case, getting someone with a sound credit history will help you build your credit from scratch. A family member works best for a banker. Ofcourse, make sure once you take advantage of someone else’s strong credit background to leverage your own “thin” credit, you maintain and service your credit responsibly. This is so because defaults on your account will also reflect in your guarantor’s credit report.

  5. A Secured Credit Card: Getting yourself a secured credit card will perhaps be a very wise decision, while you are trying to build your credit.  A secured credit card is tied to a collateral with the bank and is considered a less risky investment by the lender. A responsible use of your credit card is a solid way to build your credit history.

  6. Maintain and Don’t Mess Up: Once you have shown to the authorities that you mean serious business and are not frivolous in your expenses, you can go ahead and seek for a small amount of credit. For example apply for an unsecured card or a small loan. An unsecured credit card provides you with a “revolving” line of credit. It can be easy to go overboard with your finances with any unsecured credit card but the key to a healthy credit future is to regulate your expenses and repayments.

The best advice is to take baby steps. Do not hurry in building your credit. Just like you would nurture your baby to a strong individual, you must cultivate your credit to a strong pillar.

Happy CIBIL Score to you 🙂