Want to Build Your Credit History From Scratch? Use These 7 Tips

Build Your Credit History

Good credit history is the precondition for getting the best loans, rate of interest and credit facilities. So, what is the best way to build a credit history? Do you need to apply for a credit card, or do you need to do something different? And above all, what is credit history all about? 

Credit History: What is it all about, and what makes it essential?

Wonder what influences your credit card eligibility or your creditworthiness? All of these usually revolve around credit history.  A credit history, in simple words, describes how well you use money. Your credit score is what serves as a measurement to evaluate your stance as a borrower. How well you repay your debts, how responsible are you towards your loan repayments etc., determine your credit score. It is recorded in your credit report.  It is influenced by the pattern of your repayment history, the number of credit inquiries you make and the stretch of your credit history. Usually, the credit score ranges from 300 to 900 points. The closer you are to the uppermost limit, the better are your chances. Having a good credit score (above 750) is essential because:

  • It helps you get quick loan approvals.
  • It adds to your financial stability.
  • Mortgage lenders or potential creditors use this to decide on your loan request.

What are the best ways of building a good credit history from scratch?

1. Getting a credit card: The game-changer

It is perhaps a good way to enhance your credit history. If you have records of credit usage, banks will usually trust you to be a creditworthy borrower. When applying for a credit card, your first step towards building a good history begins. You can easily check your credit card eligibility online if you choose to get yourself one.

2. Using your Credit Card Regularly:

Next way to boost your credit history is to use your credit card regularly. It is advised for you to use your credit card at least once a month, either for shopping, flight bookings or dining. This will work magically on your credit score.

3. If you think, “I should apply for a credit card with multiple banks, “don’t!

Applying for a credit card will always influence your credit history. This will also help you avoid the ‘credit hungry’ tag and allow you to manage one card easily.

4. By becoming an authorised user of somebody else’s card:

You can help your credit score by using someone else’s credit card. You can ask your relatives or spouse to make you an authorised user of their card. However, this requires diligence. A mistake you commit can influence the credit score of the card owner directly.

5. Keep an eye on the ratio of Balance-to-limit:

Your credit limit is the maximum that can be lent to you through your credit card. The credit utilisation ratio, also known as the balance-to-limit ratio, is the ratio between your credit limit and you’re spending. Having it in mind allows you to manage the credit. Ideally, a 30-40% utilisation ratio is recommended for a good credit score.

6. Pay EMIs promptly: 

 This is crucial because it directly adds to your impressions as a borrower. Paying EMIs duly reflects your strong commitment to the lender. This helps you make quick progress towards a sturdy credit history. 

7. Switching to unsecured credit cards intelligently:

This brings a lot of benefits. It offers better advantages and enhances your borrowing limit. Using this card intelligently affects your credit score. Ideally, you can try to switch to an unsecured credit card after a year of regular credit card usage. 

What messes up your credit history, and how can you avoid it?

Credit history is not built in a day. Your credit history deteriorates due to the following factors:

  • Paying your bills late. 
  • Not reviewing your credit report timely.
  • Resisting to apply for credit card 
  • Having an unhealthy credit mix
  • Overdoing credit inquiries 
  • Not filling your ITRs on time.

Having a credit card makes things easier and provides you with financial stability. If you fulfil the credit card eligibility, you should apply for one. A credit card is the first step towards building a healthy credit history.

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