Best ways to build credit history if you don't have any
Credit bureaus use the data of persons with no credit history and compare that with other people who have the same profile. Based on the comparison, they assign a score to the applicant with no credit history.
Many banks are cautious lending to a person who doesn’t have a credit history. The same goes for credit card companies.
Credit bureaus do offer tools to banks to evaluate such applicants. However, not all banks use such analytic services of credit bureaus.
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Bureaus use the data of persons with no credit history and compare that with other people who have the same profile. Based on the comparison, they assign a score to the applicant with no credit history. They use data points such as age, location, job profile, industry, years of experience, designation, and so on.
It is best that the person with no credit history to build one as lenders and issuers charge higher interest rates to applicants with such a profile.
WAYS TO BUILD CREDIT HISTORY
The easiest way is to log onto online aggregators, offering cards and loans from multiple financial institutions. Based on your profile, these aggregators will pass your details to banks and non-banking financial companies (NBFCs).
If the institutions are interested, they will call you. But it could also lead to too many marketing calls and too many institutions asking for documents.
Individuals with no credit history can take an add-on card with their parents or close relatives. An add-on card will capture your financial transactions and help you build a credit profile.
Another option is to take a credit card against a fixed deposit (FD). If you open an FD of ₹20,000 or more with a bank, it would be willing to offer you a credit card linked to the FD. The limit would be close to the deposit that you hold.
Banks are comfortable issuing a credit card based on fixed deposit (FD) as they can put a lien on the FD if the person defaults. The FD works like collateral.
Say, a person opens an FD with a bank for ₹20,000. The bank will, typically, give a credit limit of 90% on the credit card. It means the depositor will get a card with a credit limit of ₹18,000. In such cases, the bank doesn’t need you to have any prior credit history.
Once a person starts using such a card and repaying on time, he will begin building a credit history over time. Most credit bureaus take one or two years of history into account when assigning a credit score.
Secured credit cards are also a good option for freelancers, who don’t have a regular income. Banks, usually, would not lend to such a profile if they don’t have a credit history.
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