June 1, 2023 · 5 mins read

Building Credit: How to Create Your Credit History From Scratch?

Anusha Batra

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Every time there is a sale by one of the e-commerce giants, there begins a scramble for credit cards. Be it the ‘big billion day’, ‘end of reason sale’, or ‘the great republic day sale’, what makes these discount carnivals even more exciting is the mind-blowing deals by various financial planners and partners.

In fact, in the last few years, the demand for credit cards created by such pull factors have led to a lot of ‘new to credit’, or NTC users coming under the credit net.

However, with this shift in consumer behaviour, it is of utmost importance that as individuals we understand how credit works and how to adopt healthy financial habits that will increase our credit worthiness.

Understanding Credit

So, what is credit? Put simply, credit is a loan. The kind of credit one is eligible to get depends on his/her credit score. The higher your credit score, the more creditworthy you are from your lender’s perspective.

One of the quickest means of availing credit is to get a credit card. However, most credit cards fall in the "unsecured" category of cards. This means that a credit seeker cannot get a loan without a collateral. Therefore, every card owner must have a good credit score or to get a credit card.

However, if you don't have a credit score, or have a low credit score- say, are a housewife, retired person, or have just started earning- then what can you do in such a situation? For such users getting a secured credit card, which is typically an FD backed credit card is a good option.

How to Build Your Credit Score?

Building a credit score from scratch can be very tricky. This is because you need to have a credit history to build a CIBIL score. However, this turns out to be a paradox as no bank is likely to approve your Loan or Credit Card without an adequate score.

Here are a few ways to have a good start on your credit profile:

1. Apply for a consumer durable loan: If you have never made use of credit before, there will be no history that lenders can refer to, for granting you a loan. However, you can create one easily by getting a consumer durable loan of a smaller amount, e.g. purchase of a smartphone on EMI that can be easily repaid.

2. Use the pay later option: This is a popular trend amongst consumers today. If you opt for a pay later option on any quick commerce site, it will be considered as a credit facility and reported to the credit bureau. This will also help you build onto your credit score.

3. Apply for a credit card from your salary account: A bank that already has your salary account is in a much better position to offer you a credit card, primarily because you already have a relationship with them, and have assured earnings.

4. Apply for a secured credit card: A good way to start building your CIBIL score is to get a credit card against a fixed deposit (FD), popularly called secured credit card. Each bank specifies a minimum fixed deposit amount to apply for a secured credit card. The amount in your Fixed Deposit account is directly linked to the total credit limit that will be offered to you on your credit card.

5. Use credit responsibly: If you are a salaried individual, you may be receiving offers for credit cards with cash-back benefits and higher credit limits. The key is in knowing which offers will be relevant for you and whether you really need so many credit cards. For a beginner it is advisable to start using one credit card responsibly and create a favourable credit history.

Inculcating Financial Discipline: Maintaining Healthy Credit Habits

Once you have established a credit footprint, it is essential to follow healthy credit habits in order to maintain a positive credit profile for continued access to credit.

Here are a few ways on how to inculcate financial discipline:

1. Checking your credit score regularly: Many apps like the ZET App help you check your credit score for free. Very few users of credit take full advantage of the information contained in their credit profile, also called CIBIL profile. Having a good understanding of your credit information and checking your CIBIL score and report regularly can help you save you time and money, and get ahead in life. This is called Credit Monitoring. Regularly monitoring your CIBIL Profile frequently helps you stay informed of any changes to your profile.

2. Applying for credit only when necessary: Typically, a lender performs a hard enquiry to assess the borrower’s creditworthiness every time he/she applies for credit. There is a high chance that frequent hard enquiries by lenders shall negatively impact your CIBIL Score. By applying for credit only and only when you need it, your score remains much stable and presents an overall view of a responsible credit user.

3. Paying in full & on time: One must never avail the option of part payments and accumulate interest on the long unpaid bill. This is harmful to not only your score, but the interest burden can become wildly expensive for the loanee, in the long run.

Always remember that to build a healthy credit profile is like running a marathon. Irrespective of the methods you may choose, consistency is the key. By creating and following a carefully chalked out and well planned roadmap, you can easily move towards creating your own credit footprint and becoming credit-worthy.

Go check your free credit score on the ZET App, and start building your credit future today.