Building a strong credit history is essential for financial success. It not only helps you secure loans and credit cards but also plays a vital role in determining your financial credibility. Whether you are a young professional starting out or someone looking to improve their credit score, understanding the steps to build a credit history is crucial. In this article, we will provide valuable insights and actionable tips to help you establish and maintain a healthy credit history.
Understand the basics of credit
To embark on your credit-building journey, it is important to have a clear understanding of the fundamentals. Credit history refers to a record of your borrowing and repayment activities. Lenders use this information to assess your creditworthiness. If you are new to credit or have a limited credit history, the options below are an excellent starting point for you.
Open a credit account
To begin building credit, you need to open a credit account. A common and accessible option is to apply for a secured credit card. Secured credit cards require a cash deposit as collateral, making them easier to obtain for individuals with limited credit history or low scores. Ensure that the credit limit is within your means and use the card responsibly by making timely payments and keeping the balance low.
Apply for a credit builder loan
A credit builder loan is specifically designed to help individuals build or repair their credit history. This type of loan works by placing the loan amount in a locked savings account or certificate of deposit (CD) while you make regular monthly payments. Once you have paid off the loan, the funds are released to you, and the positive payment history is reported to the credit bureaus, boosting your credit score.
Become an authorised user
If you have family members or close friends with a solid credit history, you can ask them to add you as an authorised user on one of their credit cards. As an authorised user, the credit card's payment activity will be reported on your credit report as well. However, it is crucial to ensure that the primary cardholder uses the credit card responsibly, as any negative activity could also impact your credit history.
Pay bills on time and keep utilisation low
Consistently making timely payments on all your credit obligations is vital for building a good credit history. Late payments or defaults can have a detrimental effect on your credit score and overall creditworthiness. Additionally, aim to keep your credit utilisation (the amount of available credit you use) low, ideally below 30%. High credit utilisation can suggest financial dependency and may negatively impact your credit history.
Monitor your credit report
Regularly monitoring your credit report allows you to stay updated on your credit history and identify any errors or discrepancies. You are entitled to receive a free copy of your credit report annually from each of the major credit bureaus. Checking your report can help you ensure that all the information is accurate and take necessary steps to rectify any inaccuracies promptly.
Building a credit history requires time, patience, and responsible financial management. By following the steps outlined in this guide, you can lay a strong foundation for a positive credit history. Remember to regularly monitor your credit report, make timely payments, and maintain a healthy credit utilisation ratio. Additionally, consider leveraging Bajaj Finserv Credit Pass, a unique offering that can assist you in building a good credit history. Bajaj Finserv Credit Pass provides tailored tools, empowering individuals to establish creditworthiness and achieve their financial goals by tracking their credit accounts.
