5 hacks to start building your credit score from scratch

09-Feb-2017 written by : FSI-Team

When you are new to the world of credit, you need trade lines (loans in general term) to demonstrate that you are a responsible buyer and build your credit score. But access to loans and other credit instruments might be an uphill task. So where and how do you begin your journey? Thankfully there is a way out. Here are some tips that will help you build your CIBIL score from scratch.

1. Start Slow

When you start your journey of building credit you can have several options like a student loan, personal loan, auto loan or a credit card. Signing up for a credit card is the easiest decision of all. All other options come with some amount of interest, but with credit cards you have the option of paying your balance in full each month to avoid any interest payments. But do not apply for and open too many credit card accounts. Since both will eventually lead to impacting the credit scores negatively. Please be aware that each time you submit an application the bank pulls out your CIBIL score to evaluate your eligibility and your credit file is hit with a hard enquiry. Too many such enquiries can lower your score. Start out slow with at best two credit cards and manage your payments effectively.

2. Become a co applicant

An excellent way to start establishing credit is to share the good credit of others by becoming a co-applicant of a loan with a family member who already has an established credit history. The lending institutions report the loans for all applicants and the repayment impacts the credit score for all of them independently. Since your credit report will capture all details on this account, it will help in establishing and building credit score positively. Goes without saying that the repayments have to be in time without any exception. In the event of default payments it will hurt your CIBIL score. So choose a loan and amount wisely.

3. Apply for a secured credit card

Another popular way to start building your credit is to apply for a secured credit card. It has an easy approval criteria but requires a deposit of a certain amount of money. This amount acts as a security and determines your spending limit. Since you do not pose any risk to the lender, you can get this card easily even if you are starting with a blank credit file. When you use the card and make payments on time you essentially demonstrate that you can handle debt responsibly. This helps in building up your CIBIL score. Make sure that the card company reports the activities to all the three credit bureaus.

4. Use the card responsibly

Since you do not have a very long credit history even a minor slip can have a big impact on the score. The following good credit habits will help you build a strong credit profile.

  • Keep track of the due dates and pay your bills on time. Timely payments account for 30% of the credit score and any defaults or late payments will blemish your credit history.
  • Pay the card balance in full each month. You will not only avoid paying interest but also keep your credit utilization low.
  • Do not max out your credit limit as this shows a credit hungry behaviour. By restricting your spending to below 30% of the limit you will be able to portray that you are not overly reliant on credit.
  • Do not apply for too many cards within a short period of time. Each application request gets recorded by the bureaus. Too many hard enquiries on the credit report shows desperation for credit and pulls down your score.

5. Check your credit score and report

Once you start the journey of building your credit profile it is necessary to keep track of the progress at regular intervals. Check your cibil report to make sure that there are no errors in the report. You are entitled to a free credit report once a year. However you need to pay a small amount in order to get access to your credit score. After at least 6 months of on time payments, check your score. If it has shown a significant improvement you can consider applying for an unsecured credit card.

The key to build a solid foundation for your credit score is time and patience. The effort that you put in the beginning will eventually help you get best cards and loans at reasonable rates in future.



Don't miss a bit of Credit News
Join the FSI Force