First Loan is Your First Step to Strong Credit Score

Credit score plays a major role in your future credit life. While a poor credit score creates a negative impact, no credit score/history also does not serve well. If you do not have a credit score, or say, a CIBIL score, currently, it is better that you build one well before applying for a loan, credit card, etc.

Now the question is, how to start. How does one start building a credit score, how much time does it take to reach a good CIBIL score, why it matters and more. Read on to know.

First-Time Borrowers: Building A Credit Score

If you are planning to start your credit journey, you might have thoughts of getting a credit card issued, or borrowing a loan (personal/home), etc.

Start in such a way, that your score of creditworthiness remains excellent right from the very start. For this, you need to start early, that is, well before, say a few months or a year, before you actually borrow a loan or get a credit card issued in your name. While you can create a good score in the span of a few months, it takes around a year to bring it to the excellent level.

So, what to do?

You can choose to borrow a loan or get a credit card issued in your name. But how? Let us see.

Borrowing a loan

It is suggested that you choose a small-ticket personal loan being a first-time borrower. A small ticket personal loan is usually for an amount between Rs.25,000 and Rs.50,000. Now, you are required to repay this loan amount on a consistent basis for the creation of a good payment history. For this, go ahead choosing a tenure that is short, say 6-12 months. Do not avoid missing a payment, even a single EMI, as that would slow down your journey to a very good score and even pose late payment charges.

There are a few more points to note when you are borrowing a loan for the first time and with a purpose to build CIBIL score. Avoid applying for multiple loans, or too many loans at once. Keep at least a gap of 6 months before you apply for another credit product. This is because too many loan applications trigger inquiry on your credit report, lowering your score and making a negative impact. You may even find it difficult to manage several loans being a fresher, or by chance, lack funds to repay them all.

Getting a Credit Card Issued

It is also possible to take your first step to a strong credit score via your first credit card. Here again, you need to follow certain norms. It is better to apply for a secured credit card or a low-credit-limit credit card. Keep the card active through frequent small purchases using the card. Of course, pay all bills well within the given time-frame.

Whether you borrow a loan or get a credit card issued, you should avoid late payments and also monitor the credit score on a regular basis. Correcting errors will help you succeed with your goals and objectives.

You may also like "Credit Score or Credit Report, Which Matters More?"

Credit Score: Why Does it Matter So Much?

Credit score is but a three-digit number that reflects your creditworthiness. A good score means that the lender/issuer has faith that you repay the required amounts well within the given time period. Because the lender or the issuer will not want a default from your side, they will give better offers to those with good credit scores.

A poor credit score will, on the contrary, make you pay higher interests and accept several other terms that might not be as per your wish.

Credit score brings various benefits:

• Easier credit approvals
• Trust among the lenders
• Lower interest rates
• Higher credit limit
• Better repayment terms
• Eligibility for credit cards with more benefits and better rewards

One may know that the credit scores are assigned to an individual by credit bureaus like CIBIL, Equifax, Experian and CRIF High Mark on the basis of your credit use and repayment history.

Reaching a Good Credit Score

Credit score lies between 300 and 900. When you have no credit history, issuers of credit cards or lenders of loans are unable to judge your creditworthiness, making it tough for you to get a card/loan on your terms.

Here's a table showing different levels of credit score and what it means for you and the lenders:

Know that you need time to build the score. Here's an estimation of how long it takes to create a strong score:

• For an initial score generation, around 3-6 months are required
• For moderate improvement, you will need 6-12 months' time
• For a strong, excellent credit/CIBIL score, more than a year might be required

Based on these time frames, start building your credit history well ahead of time, especially when you have plans to borrow a loan or get a credit card issued.

Recent article "Preapproved Personal Loans on Credit Cards"

More Latest Articles

Upcoming Bank Holidays

Find More Useful Links