03-Oct-2018 written by : FSI-Team
What is a credit history? Any borrowing that is done by a person, has its records stored. When we say borrowing, it is considered as the borrowing that is done by banks or NBFC (Non-Banking Financial Institutions). The credits that are taken in form of loans or credit cards are considered the borrowings and are reflected in credit reports.
What is a credit report? Who gives it? Why is it necessary to know about the credit report? A credit report is a report which has detailed information of the credit score and the credits that have been taken till date by an individual. Open accounts i.e. the credits that are ongoing like a loan which is still on and credit cards which a person is using and closed accounts i.e. loans that have been repaid and credit cards which are not active and one has closed it, these both information is reflected in the credit report. A credit report is provided by different credit bureaus. There are four credit bureaus in India viz. TransUnion CIBIL (Credit Information Bureau India Limited) which was the first bureau that was established in India, the report that is provided by them is called CIBIL Report, Experian, Equifax and CRIF Highmark are also the bureaus which gives the credit report. It is important to know and understand the credit report as that gives you a fair idea about the credit score.
As said earlier, credit score is built by the credit that is taken or we can say by the borrowings which are widely classified into loans. Loans are something which has a little higher tenure of repayment and has interest rates that have to be paid along with the actual amount. Where in, in credit cards, when made regular purchases, its zero percent interest rate and if few of the items are purchased on EMI, they are also given the option for that.
Now, let's discuss how can one get a good credit history without borrowing? The answer itself is stated above! Credit cards. In fact, they are also the options that can help in maintaining and increasing the credit score at a faster rate. The repayment cycle is as low as one month. So every month the score can get changed if the repayment is done responsibly without any delay or missed payments.
But what one has to take care is credit utilization ratio. Credit utilization ratio is calculated by the total spendings that are done using credit card divided by total credit limit that is available multiplied by a hundred. It is advised that the credit utilization ratio should not exceed forty percent (40%) maximum. It is a good practice if it is maintained for thirty to thirty-five percent (30% - 35%). the logic behind this is that, the more the credit card is used, the more impressive it gives that the user is in need of excessive funds. And that makes it a credit hungry behavior. What can be done in such case id to either apply for one more credit card if the usage usually exceeds the actual rage or the payment for the card can be done more than once a month. Whenever the cardholder feels that the utilization is going to cross thirty-five percent, make that payment so that the credit line restored and the amount can be used again!
All it takes is little attention and calculations in actuality to get the perfect credit score. There is no rocket science in achieving the 750 or plus score. Usual payments, not missing the repayment dates, maintaining a proper credit utilization ratio and the good credit score is achieved without any borrowings!