No Credit History? How to Build Credit Score for New-to-Credit Applicants

A lender or a credit card provider checks your credit score when you apply for a credit product. It is done to assess your creditworthiness and thus analyse the risk in providing credit to you. Your creditworthiness is judged by credit bureaus based on how you have handled credit in the past, be it a personal loan, home loan, credit card or any other credit product.

In case you have never availed any credit product in the past, you might not have a credit history and thus no credit score. Let us understand how would you be assessed by lenders and credit card providers in such a scenario.

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Who are New-to-Credit (NTC) Borrowers

‘New-to-credit’ borrowers are those individuals who have never availed any credit product in the past and are not availing any credit product at present as well. These applicants have no credit history. They may be eligible for a few entry-level credit cards and some small-ticket loans.

First-time borrowers or new-to-credit applicants may find it difficult to get the best loan or credit card offers, as those instruments require the applicant to have a good credit history.

Read on to learn some useful tips suggested for new-to-credit customers, as how they can build their credit scores and avail lending benefits:

Tips for New-to-Credit Applicants to Build the Credit Score

If you have not availed any credit in the past and want funds, your loan application for small ticket loans or entry-level cards might get approved. But, if you need a big-ticket loan or a premium credit card, you need to first build your credit score to be eligible to avail the credit product.

Below mentioned are a few measures that can help you gradually build your credit score.

Apply for Secured Credit Card

A secured credit card can be availed by opening a fixed deposit as collateral that further becomes your credit limit (sometimes a part of FD is provided as your credit limit). You can build your credit history gradually by using a secured credit card responsibly.

The card-issuing entity easily approves secured credit card applications, as it is backed by fixed deposits. This is the most convenient method for first-time borrowers to start building their credit score.

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Apply for a Consumer Durable Loan

With the help of a consumer durable loan, you can purchase household and office products, such as electronic products, home or official appliances, furniture, and much more.

It becomes easier for ‘new-to-credit’ customers to avail consumer durable loans, as compared to other lending products, such as personal loans, business loans, home loans, auto loans, etc. It helps in building the credit history of customers who are new to the borrowing market as the repayments are reported to credit bureaus by the card providers.

Also Know: How to repair a bad CIBIL report – Step by Step

Choose Buy Now Pay Later (BNPL) Option

BNPL options are rapidly gaining importance, as it has turned out to be beneficial in building credit health by using them for low-price products. BNPL is a user-friendly method related to various retail transactions in which customers can make immediate purchases and pay later.

This option allows customers to buy goods and services without paying any one-time or upfront fees. It allows you to repay in equated monthly instalments over a specific period which helps in building credit score.

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Approach your Bank where you have an Account for a New Credit Card

If planning for a credit card, customers can opt for a bank where they have their existing financial relationship, such as a salaried account, current account, business account, etc. as they already maintain a healthy relationship with the bank.

Also, the lending banks already have access to their financial history, so credit card application approval becomes easy. Many banks provide new credit cards to first-time borrowers based on the salary account they manage with the bank.

Also Know: How many months does it take to increase my CIBIL score?

Now that you have got a loan or credit card, you need to manage it wisely to build your credit score over a while. Let us find out how to do so.

Pay Your Bills on Time and Utilize Credit Sensibly

Lenders report consumer credit information to credit bureaus regularly. As per the data provided by the lenders, credit bureaus generate credit reports of their customers.

Therefore, paying off your loan EMIs and credit card bills on time can reflect you as a credit-responsible borrower in the eyes of lenders and thus can further help in improving your credit score.

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Keep Your Credit Utilization Low

Credit Utilisation Ratio (CUR) is the ratio of used credit limit to the total credit limit available to a cardholder. Monitoring your credit utilization ratio regularly is vital, as it depicts how well you have managed the assigned credit limit.

A high CUR depicts you as over-dependent on credit whereas a low CUR shows you are less dependent on credit. Utilize your credit limit responsibly to make sure that there is no negative impact on your credit score.

Showing yourself as highly dependent on credit right from the start of your credit history can be taken negatively by lenders. Keeping your credit utilization ratio to the minimum and repaying all the dues in time can also help in building a healthy credit score.

Stay Vigil about your Credit Report

Do check your credit report from time to time. If you find any credit account assigned to your report that you haven’t availed, you should report it immediately to the lender and the credit bureau.

xoAny wrong information in your report can lower your credit score significantly. Going through your credit report regularly can help you understand your credit better.

Don’t Apply for Credit Too Frequently

You should apply for a loan only when you need it. While applying for a credit card, you should be well aware of the additional requirements such as salary or any other criteria that a provider demands for.

Do not apply for a card that you may not be eligible for as any credit rejection may lower your credit score from the very beginning.

Conclusion

Building a credit history takes time. It improves gradually and usually takes 3-4 months to reflect the revised credit score, depending upon how well you have managed your credit products.

Building a good credit score (750+ out of 900) shall take even more time for borrowers who are ‘New to credit’ and with no credit history. By following the above-mentioned tips, borrowers who are ‘New to credit’ or having no credit history can slowly and steadily build their credit history.

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