4 smart ways to start building your credit score as a beginner
Have you newly joined the workforce? Have you applied for a personal loan or a credit card and got rejected due to the lack of a credit score? For new-to-credit individuals who have just joined the workforce, the lack of a credit score can make it difficult to get access to credit instruments. If you, too, are in the same situation, you need not worry.
In this article, we will discuss some ways in which new-to-credit individuals can get access to credit instruments and start building their credit score and profile.
Ways in which new-to-credit individuals can build their credit score
Some ways in which new-to-credit individuals can get started with their credit score and profile-building journey include the following.
Take a credit card based on your salary account
Even if you don’t have a credit score, some banks, like big private banks, may give you a credit card based on your salary account. You can approach a bank with whom you have a salary account and talk to your Relationship Manager for a credit card.
Some banks may give you a credit card soon after the first salary is credited. On the other hand, some banks may wait for a couple of months to evaluate your spending patterns before offering a credit card. In such cases, you may not get a credit card of your choice and may have to manage with an entry-level credit card. Also, the bank may approve a small credit limit to start with.
Over a period of time, as you make regular, timely payments, the bank may offer credit limit enhancements. You may accept the credit limit enhancement offer, as a higher credit limit may make you eligible for premium credit cards at a later stage.
After some time, the bank may also give credit card upgrade offers with a higher credit limit. If the card being provided in the upgrade offer suits your requirements, you may go for it. If you wish to apply for some other credit card from the same bank, you may make an application for it. Once you get the desired credit card, you may close the earlier one if you are not using it anymore. Now you can use the new credit card with a higher credit limit to enjoy its features and benefits, and further build and maintain your credit score.
So, based on your salary account, you can start with an entry-level credit card with a lower credit limit to build your credit score. As you progress ahead in your credit journey, you may seek higher credit limits, credit card upgrades, etc.
Take a secured credit card
If you are unable to get a credit card based on your salary account, you need not worry. Your credit journey will not stall because of it. You can go for a secured credit card to start your credit score and profile journey.
A secured credit card is offered against the security of a fixed deposit. A lien will be marked on the fixed deposit. It means it will be auto-renewed on maturity for the same tenure at the prevailing interest rate for that tenure. You will not be able to close the fixed deposit and withdraw the money till the credit card is active. The credit limit on the credit card usually ranges between 75% to 100% of the fixed deposit amount.
First, you will have to open a fixed deposit with the bank from whom you wish to take the credit card. Once the fixed deposit is in place, you can apply for a credit card against it.
For example, IDFC FIRST Bank offers credit cards like the FIRST WOW! and FIRST Earn credit cards against fixed deposits. The FIRST WOW! is a lifetime free credit card. IDFC FIRST Bank offers a credit limit of 100% of the fixed deposit value for the FIRST WOW! Credit Card. The card has good features like 4X reward points, zero forex mark-up charges, up to 20% discount at 1,500+ restaurants, 1% fuel surcharge waiver, etc.
The FIRST EARN Credit Card features include 1% cashback on transactions through the IDFC FIRST Bank Mobile App, 0.5% cashback on UPI transactions, 25% discount on movie tickets booked through the District App, etc.
So, with a fixed deposit-backed secured credit card, you can start your credit journey of building a credit score and profile. A secured credit card can be your gateway into the credit world. Over a period of time, once you have built a good credit score, you can apply for a premium credit card of your choice, provided you meet the eligibility criteria.
Take an EMI plan for an electronic/consumer durable product
These days, most banks, NBFCs, and fintechs are willing to offer EMI plans for various purchases like mobiles, gadgets, electronics, consumer durables, etc. Some financial institutions consider loan applications for smaller amounts for short-term EMI plans of 6-12 months, even without a credit score. If you are working with a well-known company and have a decent salary, there are good chances of getting a small ticket personal loan even without a credit score.
Once the EMI plan for the purchase is approved, the timely repayment of EMIs helps you build a credit score and a profile. By the time you finish the loan repayment in 6-12 months, you will have built a decent credit score. You can then use the credit score to get more personal loans and/or other loans of higher amounts, or apply for a credit card(s).
Go for a Buy Now Pay Later facility
Some e-commerce platforms offer the Buy Now Pay Later (BNPL) facility. The customer can use this facility on the platform payment page for various eligible purchases. The customer can repay the entire amount next month or choose an EMI plan with a tenure usually ranging from 3 to 12 months.
Some platforms that offer the BNPL facility include:
- Amazon offers Amazon Pay Later
- Tata Neu offers Tata Pay Later
- Flipkart offers Flipkart EMI
If you have been shopping regularly with the platform, they may offer the BNPL facility even if you don’t have a credit score. To start with, you may be offered a small credit limit. If you don’t have a credit score, you can use the BNPL facility for a purchase on the e-commerce platform and opt for the EMI plan of 6 to 12 months.
While the e-commerce platform is offering the BNPL facility, they have a tie-up with banks/NBFCs that are providing the credit facility at the backend. When you make regular EMI repayments, the bank/NBFC that has offered the BNPL facility reports each repayment to the credit bureaus like CRIF High Mark, etc. It helps you build your credit score. Over a period of 6 months or so, once you have built a decent credit score, you can approach banks/NBFCs directly for a loan and/or credit card.
Getting started with your credit journey
If you are a new-to-credit individual, you need not worry at all. We have discussed various ways in which you can get started with your credit journey. These can be your gateway into the credit world to build your credit score and profile. With regular, timely EMI repayments or monthly credit card bill payments, it may take you 6 months or so to build a decent credit score. Once you have a decent credit score, you can apply for any loan/credit card with any bank/NBFC, provided you meet the eligibility criteria.
Gopal Gidwani is a freelance personal finance content writer with 15+ years of experience. He can be reached at LinkedIn.
Disclaimer: Mint has a tie-up with fintechs for providing credit; you will need to share your information if you apply. These tie-ups do not influence our editorial content. This article only intends to educate and spread awareness about credit needs like loans, credit cards and credit scores. Mint does not promote or encourage taking credit, as it comes with a set of risks such as high interest rates, hidden charges, etc. We advise investors to discuss with certified experts before taking any credit.
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