New to credit? Tips to build a good CIBIL credit score


This may seem unfair, but the reason is that you have not established a history to show that you have the discipline to make payments over an extended period of time.

Rajiv Raj

If you are trying to build credit, you may be confronted with one of life’s great paradoxes: In order to get credit, you must have a credit history.

If you have no credit history, creditors may treat you the same as if you have bad credit. This may seem unfair, but the reason is that you have not established a history to show that you have the discipline to make payments over an extended period of time. Fortunately, you can easily establish credit. Here are two ways to jumpstart your credit history.

One very important step that Rekha Rajagopal, a Bangalore-based techie took as soon as she took up her first job was to apply for a credit card. The reason: “Right from the beginning I knew I wanted to buy a house early on my career. So I had to build a credit history and apply for a loan,” she explained.

So take that first step towards starting a financially disciplined life. Start building your own credit history. Following is a step-by-step guide to build your credit history:

  1. Know what a credit score is: A credit score shows the credit worthiness of an individual. It also shows the kind of financial discipline a person has. It is created by credit bureaus based on the kind of loans, credit and payments done by an individual.
  2. Score parameters: The credit score of every person is different and is evidence to varied credit behavior. The credit score is not a permanent one. It is extremely dynamic and keeps changing as a person changes his financial behavior. “The score is calculated based on the person’s credit profile parameters at that point in time. It is important to know that the following parameters are taken into consideration while calculating a consumer’s credit score:
- Credit Utilization: how much credit is this consumer using?
- Defaulting: how many accounts are past due – by how many days and by how much?
- Number of inquiries: has this consumer applied for additional credit lines?
- Trade Attributes: How old are this consumer’s lines of credit? What type of credit does he have? Does the consumer have a good mix of credit or is it all credit cards?” said HarshalaChandorkar, senior vice-president, consumer relations with Credit Information Bureau of India Limited, (Cibil).

Score impacts: It’s important to understand what impacts your credit scrore. “Non-payment of or serial delays in repayment of credit card dues negatively impact the credit score. Possession of too many credit cards and little or no secured loans can negatively impact the credit score. In India, card issuers report high credit / credit limit to bureaus. If one has many credit cards, the sum of all the credit limits / high credits results in a high unsecured to secured loan ratio, that can impact the credit score,” said Sridhar K, vice-president at Highmark Credit Information Services Private Limited, told CreditVidya in an emailed response. “Consistent high utilization of the credit limit is unfavorable, and vice versa, the lower your credit utilization, the better as it suggests that one is using a small amount of the credit that's been loaned to them. Credit card users must try and pay the full amount on or before the due date, in order to keep the “high credit” and hence the credit utilization under check,” he added.

Get a secured credit card: If you are rejected a card, do not keep applying repeatedly. See if any bank can give you a prepaid card. Slowly graduate to a low balance credit and its usage of for a year gives longevity to your credit history. This is a good start.

Maintenance of good credit score: It’s easy to start a credit history. But it’s very difficult to maintain a good credit score. You have to a keep a lot of things in mind. Pay all your bills on time. If you delay your payment it will show as overdue in your credit history, which does not go down well with the lenders. Also make sure you do not fall prey to minimum amount due of your bills. Even if you pay the minimum amount, you will still be charged interest on the entire amount.

The author is Co-Founder & Director, CreditVidya 

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