While apps like EarlySalary are always available to meet urgent, high-value cash demands, it’s still essential to focus on your credit score. A good credit score ensures that you’re able to acquire a quick loan based on your creditworthiness. Now let’s check out a few ways through which you can start building your credit score:
#1 Get a Credit Card
Getting a credit card is the easiest method for kick-starting your credit score journey. While getting a credit card is not rocket science, knowing a little bit about them can help you build a good credit score. There are primarily two types of credit cards that individuals can choose from – secured and unsecured.
An unsecured credit card is offered by banks based on your previous credit history. This likely eliminates the chances of an individual without a prior credit history on getting an unsecured credit card. But, if you have a stable stream of income, then you can still avail it. Here the proof of your steady income will testify the banks about your potential in clearing your credit card dues.
But if you are someone with both no credit history and stream of income, then there’s no need to worry. You can still get a secured credit card. A secured credit card is usually tied to collateral like an FD. So, by applying for a secured credit card you can start building your credit score.
But as a rule of caution, do change your credit card status from secured to unsecured at the earliest. A bank can misjudge you for being unreliable for credit as you own a secured credit card. So holding a secured credit card for long can have unintended results on your credit history.
#2 Adopt Smart Credit Card Practices
While getting a credit card is easy and will start building your credit score, what you do with the credit card holds paramount importance. Each activity related to your credit card, right from usage to swiftness in paying the dues is monitored by credit bureaus who then formulate your credit score based on it. So, no second thoughts on how important it is to use your credit card smartly to boost your credit score. Plus, here’s a warning on getting too friendly with credit cards.
- As a rule of thumb, use your credit card up to 40-50% of its limit. This is crucial since your credit card comes with a balance-to-limit ratio, which is the ratio of credit limit and the amount you have spent using the credit card. If you don’t overindulge in using your credit card, you will not look credit-dependent to credit bureaus.
Also, little to no use of your credit card might look like a sensible option here. But it will still poorly impact your credit score. Therefore, it is advised to use your credit card once, in a while, Healthy usage favorably impacts your credit score. Let’s not forget that the goal here is to build the score, and not to destroy it.
- Since now you know how a credit card can help you raise your credit score, you don’t have to apply for a credit card in each bank. While we understand that you have the purest of intentions, this move will backfire. Rushing in to get multiple credit cards will make you look credit-hungry to the credit bureaus. And that is certainly not the impression that you want to have.
- Goes beyond saying – pay up your EMIs completely, and on-time. The credit bureaus are regularly updated on your credit card activity by the banks, and a missed EMI is the greatest of all the financial sins. Your credit score will not only get impact drastically because of your missed repayments but will also hinder your plans of applying for a personal loan.