How Can a New to Credit User Start with Their Journey of Building Their Credit Score?

As you begin your journey towards achieving distinct financial goals, you realise the necessity of forming a good score. While it is just a 3-digit number, it shows your credibility. Apart from this, your score is the initial thing that a lender ensures to review before processing your application. From borrowing a car loan to applying for a home loan, a strong score is a must and is extremely helpful in attaining your distinct milestones in life.

However, in the case, you have never availed any kind of loan or credit card, then this means you probably have no credit record. Being a user who is new to credit, you must know you will not be provided with a strong score right off, nor you could form it overnight. To form a strong score, you must follow healthy credit habits. While you follow healthy credit habits, ensure to check free CIBIL score online. Doing so would allow you to understand your credit standing and if you must take any measures to improve your score. CIBIL full form is Credit Information Bureau India Limited, which is one of the most trustworthy bureaus in India.

How can you begin your credit journey to achieve a strong credit score?

Well, there are various ways to form a strong score, read on to know –

Can borrow a short-term credit and repay the same time in full – 

The next way to form a good score is to place an application for a short-term loan from any authorised bank or non-banking financial corporation or NBFC. You can make use of this amount for your continuous expenditures or for meeting any of your crucial financial goals.

The spread of your credit repayments over a selected repayment tenure can assist you to form your score over time. If the requirement comes up, you can even place an application for bigger credits post making repayments of your existing ones.

Assess the extent to which you can use the available credit option – 

Regardless of the platform you have chosen to borrow the loan, you must even be aware that credit bureaus even factor in your CUR (credit utilisation ratio) to decide your credibility. Also, this is addressed as a balance to limit, which is just an indicator signifying the extent you can get the credit facility. In case you do not want to leave any impression of a credit-hungry individual, it is crucial for you to assess your credit spending well. In a few scenarios, excess usage of the available credit might negatively affect your score.

Repay your outstanding dues timely and in full – 

Your initial credit repayment record plays a very important role in deciding your score. This is why it is recommended to form a habit of making repayments on time. In the case you have a tendency of forgetting to make the repayments on time, then you may consider activating the automatic bill repayments feature to avoid missing out on making your bill repayments. Doing so would help you to ameliorate your credit score also.

Check out your credit report periodically – 

Your credit report shows your financial record, which involves your present score, which can showcase detailed info regarding your borrowing and spending habits. You may benefit deeply by fetching your credit report periodically and analysing how your constant borrowings have affected your score. Accordingly, you may change your habits linked with spending and ameliorate your financial health.

When you start your journey to forming your credit score, it may feel like a long way, but it is not if you are consistent with your credit habit. With consistency, you can build your score.

Reasons for your credit score to be important for lenders – 

Your score shows your financial responsibility to banks and lenders. To elaborate, lenders and banks can instantly decide your reliability in debt repayment depending on your score. Besides this, there are majorly two reasons your score is crucial for lenders when processing your loan application.

Comprehensive debt repayment record – 

Lenders tend to place high weightage on your past credit record as they do not look to work. This is because they do not look to work with consumers who can turn into risky customers as they have a tendency of missing out on loan repayments. The credit report consists of crucial details linked with past credit records like prior loan repayment records and defaults on loans, which endow lenders with a concise evaluation of your potential to repay the loan or credit card dues. Lenders tend to favour those borrowers with a good credit history, which is displayed by a good score on the credit report.

To evaluate your DTI (debt to income ratio) –

This ratio displays how much leverage you may have as a loan borrower. A high DTI (debt to income) ratio places the individual in the high-risk category. This might result in the lender turning down your application for a loan. Your debt must always be less as compared to your income. So, ensure to form a budget and manage the same in a manner that your dues do not overshadow your earnings.

Frequently asked questions – 

How much credit score is a must to avail an approval for loan?

Usually, a credit score equal to 750 and above is looked upon as an average credit score by many banks, lenders, and financial institutions. If your credit score lies in the range of anywhere between 750 and 900, you would be able to avail excellent loan offers.

Can I avail a loan with a credit score equaling 650?

A credit score equaling 650 is looked upon as a low score. While a few lenders might still approve credit lines to you, note that the rate of interest would be high. Also, you might require to arrange for a guarantor, who has a high credit score to get instant loan approval.

How can you enhance your credit score?

By following disciplined financial practices like debt repayment on time and in totality, keeping DTI (debt to income) ratio less than 30 per cent, and managing distinct kinds of credit mix, you may be able to ameliorate your score quickly. However, note that your score would not show any improvement overnight. This might take nearly six months to a year for your credit score to get improved based on your financial discipline and behaviour.


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