How to Build Your Credit Score Fast In 2024 | Niyo

How to Build Your Credit Score Fast In 2024

Many people are uncertain about how to build your credit score. If you’ve never applied for a credit card or loan, chances are you don’t have a credit history. Building credit is crucial for getting credit cards and quick loans. If you’re starting out, follow these tips to build a good credit history from scratch.

What Is Credit Score?

In India, the CIBIL score is a prominent credit score provided by the Credit Information Bureau (India) Limited. Lenders use the CIBIL score to evaluate loan or credit card applications. A higher CIBIL score increases the likelihood of loan approval and favourable terms. Conversely, a lower score or negative credit history may lead to higher interest rates or denial of credit. Both credit scores and CIBIL scores play a crucial role in financial transactions, affecting loan approvals, credit cards, and insurance rates.

How To Build Your Credit Score?

By following these steps, you’ll be on your way to Build your credit score, and showing off an above-average credit history.

8 Tips to Build your Credit Score

1. Apply for a Credit Card

Lenders and credit card companies may hesitate to lend to individuals lacking a credit history, relying on it to assess repayment reliability. To build credit, using a credit card is vital. The key question is, how do you establish credit when lenders are hesitant? Thankfully, there are ways to overcome this challenge. A credit card is a widely used tool to initiate your credit journey, offering an easy way to boost your credit score independently. Decide between secured and unsecured cards depending on your requirements.

Unsecured Credit Card

Unsecured credit cards are ideal for building your credit score, but beginners often face hurdles due to the absence of a credit history. Unlike secured ones, unsecured credit cards don’t need collateral. To qualify, a strong credit history and ample income are necessary to showcase creditworthiness. If you’re earning, apply for an unsecured credit card. If approved, use it to start building your credit score. Otherwise, consider alternative credit card options that are more accessible.

Secured Credit Card

If lenders are overlooking your unsecured credit card application, consider opting for a secured credit card. This is especially suitable for those who are new to credit and not currently earning. Secured credit cards are accessible to credit newcomers and are obtained by providing a security deposit or collateral, often in the form of a fixed deposit in most banks.

2. Become an Authorized User

Another method to build your credit score involves utilising an unsecured credit card. As mentioned earlier, those without a credit history may struggle to obtain one. However, they can still enhance their credit score by becoming an authorised user on someone else’s credit card. If a family member or spouse has a credit card, you can ask to be added as an authorised user. Exercise caution in using it, as any misstep can directly affect the cardholder’s credit score, especially since you’re new to credit.

3. Avoid Applying for Multiple Credit Cards at Once

Building your credit score requires strategic moves. Avoid applying for multiple credit cards simultaneously, as each application affects your score. Rather than appearing credit-hungry, use and manage one card efficiently. Keep the balance low, pay the bill in full and on time to enhance your creditworthiness.

4. Use Credit Card Regularly

Building a credit score is crucial, especially for those new to credit or with minimal credit history. To establish a healthy credit score, consistently use your credit card. Regular usage and timely repayments contribute to building a positive credit history. Whether you have an existing credit history or are looking to create one, it’s recommended to use your credit card at least once a month for purchases at stores, restaurants, or other activities to keep it active. This practice is valuable in the journey of how to build a credit score.

5. Monitor Credit Utilization Ratio

Your credit card comes with a credit limit, the maximum amount you can spend. Credit bureaus analyse the credit utilisation ratio (CUR), the proportion of your spending to the credit limit, to assess your credit score. Maintaining a CUR within 30%-40% is advisable to showcase responsible credit management. While the CUR of 60-70% has minimal impact, consistently maxing out your card or having the CUR of 90-100% may be viewed negatively, affecting your credit score. Monitor and manage your credit utilisation to present a favourable credit profile.

6. Stay On Top Of Your Bills

Lenders report your credit data to credit bureaus periodically, forming the basis for your credit report and score. While the weightage of various credit parameters isn’t disclosed, debt repayment history holds a significant influence. Missing or delaying loan or credit card payments can severely impact your credit score. Building a healthy credit score quickly involves ensuring full and timely payments, particularly for debt obligations. Prioritise responsible debt repayment to enhance your creditworthiness in the journey of how to build a credit score.

7. Maintain a Healthy Credit Mix

Unsecured loans, like personal, business, or education loans, often contribute to a decrease in credit scores. These loans, lacking collateral, pose higher risks than secured ones such as home or auto loans. To sustain a good credit score, it’s advisable to maintain a balanced mix of credit. This approach mitigates risk and results in a more favourable credit score. A diverse credit portfolio portrays the borrower as less risky, benefiting both the individual and the lending institutions.

8. Check Your Credit Score Regularly

This tip is all about keeping an eye on your credit score regularly. Checking credit scores often helps you figure out if you’re doing well with your money or if there’s something you need to work on. It’s like a compass to see if you’re going in the right financial direction.

How To Check Credit Score

• Annual Credit Report: To check your credit score, you can obtain a free copy of your credit report from each of the three major credit bureaus—Experian, Equifax, and CIBIL—once every 12 months. This can be done through the Annual Credit Report website:https://www.annualcreditreport.com/index.action. While this report typically includes your credit score from one or more bureaus, it may not be the exact score used by lenders. This process allows you to regularly check your credit score and monitor your financial standing throughout the year.

• CIBIL Website: To check your credit score, CIBIL, the most widely used credit bureau in India, provides a free credit score once a year through their website:https://www.cibil.com/freecibilscore. However, to access this service, you’ll need to create an account on their website and provide your PAN number along with other necessary details. This enables you to perform a credit score check and stay informed about your creditworthiness.

Beware of free credit score offers: When considering free credit score offers, it’s essential to be cautious. While some websites and apps provide free credit scores, they may employ a different scoring model than the one used by lenders. Furthermore, these platforms might ask you to sign up for a credit monitoring service or a trial offer as part of the credit score check process. Exercise caution and carefully review the terms before engaging with such offers to ensure you understand the implications of obtaining your credit score through these services.

Monitor your credit report regularly: 

It’s important to keep an eye on your credit report. Even if you don’t frequently check your credit score, it’s a good idea to review your credit report once a year. This helps ensure that all the information is correct and current. If you notice any mistakes, report them to the credit bureau. It goes beyond checking your credit score it involves reviewing your credit history to find and fix any discrepancies.

Remember to use secure and reputable sources to check your credit score. Regularly monitoring your credit score is a good practice to stay informed about your financial standing and detect any potential issues or inaccuracies.

The Importance Of Building A Good Credit Score

2. Does CIBIL score affect my chances of getting a new loan or credit card?

Yes, your CIBIL score affects your chances of getting a new loan or credit card. A higher score increases approval chances, while a lower score may lead to less favorable terms or denial. Maintain a positive credit history for better opportunities.

3. What is the minimum CIBIL score required for any type of loan?

A CIBIL credit score of 750 or higher is generally considered good for applying for any type of loan.

4. What is the minimum credit score to get personal loans?

Banks and NBFCs usually want a CIBIL credit score of 750 or more to approve personal loans. A higher score means you’re less likely to have trouble repaying, making it easier for banks to approve your loan.

5. What’s the credit score required for application of a credit card?

The credit score required for a credit card application can vary among issuers. However, a generally good credit score, often around 750 or higher, increases your chances of approval. It’s advisable to check the specific requirements of the credit card issuer you are interested in.