Being aware of your Credit Score is extremely important to ensure financial security and future benefits. Many believe that a Credit Score is only necessary for working professionals, but in reality, it can be built right from student life and plays a key role in accessing various financial opportunities in the future. A better Credit Score can help you get loans sanctioned at low-interest rates easily, and even create better professional opportunities later on.
Many do not fully understand that building a Credit Score at a young age can open doors to significant financial advantages in the future. In this blog, we will explore the top 10 ways to build a good Credit Score and ways to improve your existing score.
Understanding Credit Score
Before discussing strategies, let’s first understand what a Credit Score is and why it is important.
What is a Credit Score?
A Credit Score is a 3-digit number, also known as a CIBIL Score, which reflects your ability to repay loans. Generally, this score ranges between 300 and 900, and the higher the score, the stronger the financial profile it indicates. Loan providers use this score to determine your eligibility for credit.
Some information about Credit History:
The system of Credit Scores was introduced in India in 2000 when the Reserve Bank of India (RBI) approved the establishment of a structured credit reporting system. Later, in 2004, India’s first credit organization, Credit Information Bureau (India) Limited (CIBIL), was established.
CIBIL began providing personal Credit Scores in 2007. Currently, in India, the four major credit bureaus are CIBIL, Experian, Equifax, and CRIF High Mark. These organizations analyze customers’ loan and credit information and assign a Credit Score between 300 and 900, which banks and loan providers use to approve loans.
Can a student have a good Credit Score?
Yes! Even without a permanent job, you can build a Credit Score by making the right financial decisions. By using credit responsibly, a student can also achieve a good Credit Score.
Ways to Build a Good Credit Score
1. Get a Student Credit Card
A Student Credit Card is one of the easiest and most effective ways to create new credit history. These cards are specially designed for students with little or no credit history. When selecting a card, choose one with no annual fee and a low-interest rate.
It is good for small purchases such as monthly groceries or paying online subscription bills. Always pay the full bill each month to avoid interest and positively build your Credit Score.
2. Become an Authorized User on a Parent’s Credit Card
If your parents have a good Credit Score, they can add you as an authorized user on their credit card. This can add their positive credit history to your profile, helping your Credit Score grow faster. This is a profitable way to improve your credit score quickly.
However, ensure that your parents have a good credit score and make payments on time.
Also Read: Want Success in the Stock Market? Learn These 7 Simple Ways to Master Technical Analysis
3. Use a Secured Credit Card
If getting a regular credit card is difficult, a secured credit card is a good option. To get this card, you need to deposit a certain amount as a security deposit.
Generally, the credit limit is determined by the amount of the security deposit.
Paying bills regularly and on time is reported to the credit bureau, and if done consistently, it can gradually improve your Credit Score. This is an effective method for those new to credit.
4. Pay Your Bills on Time
Your payment history determines 35% of your Credit Score, so timely bill payment is extremely important. Delayed payments can reduce your Credit Score and make it difficult to get loans or credit cards in the future. To avoid this, you can set up automatic bill payments to ensure timely payments. Reminders can also be set before the due date for easier management.
Consistently paying bills on time can help an individual improve their Credit Score, which increases the chances of loans at lower interest rates and other financial benefits.
Also Read: Master Annual Reports to Pick the Right Stocks
5. Keep Credit Utilization Low
How much of your credit limit you use directly affects your Credit Score. Generally, credit utilization should be kept below 30%, which indicates responsible credit usage.For example, if your credit limit is ₹10,000, try not to spend more than ₹3,000.
Using a small portion of your credit and repaying on time can improve your Credit Score quickly. Paying bills monthly also avoids unnecessary interest. This helps build a strong credit profile over the long term.
6. Take Out a Small Credit Builder Loan
A Credit Builder Loan is a small loan that helps create new credit or improve a Credit Score. Repaying this loan regularly and on time is reported to the credit bureau.
If repaid correctly, it positively impacts your credit history. After fully repaying the loan, your Credit Score can increase significantly.
Also Read: Mrs. Watanabe: How Japanese Housewives Shook Global Finance
6. Take Out a Small Credit Builder Loan
A Credit Builder Loan is a small loan that helps create new credit or improve a Credit Score. Repaying this loan regularly and on time is reported to the credit bureau.
If repaid correctly, it positively impacts your credit history. After fully repaying the loan, your Credit Score can increase significantly.
Also Read: Mrs. Watanabe: How Japanese Housewives Shook Global Finance
7. Report Rent and Utility Payments
Many landlords and utility companies do not report payments to credit bureaus. Using a rent reporting service, rent and utility payments can be included in your credit history. You can sign up for services like ePayRent, which report your timely payments to the credit bureau. Regular and timely bill payments are necessary for this to work.
This method is particularly useful as it increases your Credit Score without a credit card and is highly beneficial for individuals with a new or low score.
8. Avoid Applying for Too Many Credit Cards
Every time you apply for a new credit card, it counts as a hard inquiry, which can slightly lower your Credit Score. Only take new credit cards when necessary and when it supports financial stability.
Usually, one or two credit cards are enough, as managing too many cards can be difficult. Avoid store credit cards because of their high interest rates and the temptation of offers, which may lead to unnecessary debt.
Also Read: Top 10 Stock Market Frauds That Shook India
9. Keep Old Credit Accounts Open
Closing old credit accounts reduces the average age of your credit history, negatively impacting your Credit Score. Even if you are not using a credit card, it is good to keep the account open to build long-term credit history.
If an account must be closed, keeping the older account open rather than opening a new one is preferable. Long-term, active credit accounts help improve your Credit Score, aiding in future loans or other financial benefits.
10. Monitor Credit Report Regularly
Checking your credit report regularly is important to track your score progress and identify any incorrect information. You can get free credit reports from Equifax, Experian, or TransUnion. If any errors are found, immediately apply for correction (dispute) to avoid harming your score.
To identify fraud or unexpected changes, you can sign up for credit monitoring services. Regular monitoring and quick action can gradually improve your Credit Score.
Also Read: Smart Tax Planning: How to Save More and Build Your Financial Future
Conclusion
As a student, it is possible to build a good Credit Score by following the right financial practices. Responsible use of a credit card, timely bill payments, and keeping credit utilization low can help you achieve a strong Credit Score quickly. Start building credit now so that when you need a car or home loan in the future, approval becomes easier.
FAQs
As early as possible! Many banks offer special credit cards for students, which allow you to gradually build a good Credit Score.
A Student Credit Card is designed for new credit users, typically with a lower credit limit, low-interest rate, and sometimes no annual fee. A Secured Credit Card requires a security deposit, which determines your credit limit.
Yes, multiple applications create hard inquiries, which can reduce your Credit Score.
Timely bill payments, keeping credit utilization below 30%, keeping old accounts open, and regularly monitoring your credit report are the best ways to improve your Credit Score quickly.
You can get credit reports from Equifax, Experian, and TransUnion, or use various online monitoring services.
Leave a Reply