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Starting your financial journey with a clean slate can be both an opportunity and a challenge. When it comes to building a credit score from scratch, it might feel like you’re facing a steep climb. Perhaps you’ve just landed your first job, and suddenly, you realise how crucial it is to build your credit score.
Without a credit score, securing loans, renting apartments, and even getting some types of jobs can be tougher. But don’t worry! Building a good credit score from the ground up is more doable than it sounds, and it's your first step towards financial freedom. Here’s how you can start on solid footing and gradually climb the credit ladder.
What is a credit score?
A credit score is a numerical expression based on an analysis of your credit files, representing the creditworthiness of an individual. Lenders use this score to evaluate the probability that you will repay your debts. A high credit score can be the key to unlocking better interest rates, higher credit limits and various other financial benefits.
Steps to build your credit score
Building a strong credit score is a strategic process that involves several practical steps. Here are the key actions you can take to effectively build and manage your credit -
Start with a basic credit facility
For those with minimal or no credit history, your first step should be to acquire a simple credit tool, such as a basic Credit Card or a small Personal Loan. These are designed to start building your credit presence responsibly.
For instance, consider opting for a Personal Loan from Axis Bank. You can secure amounts up to ₹40,00,000 with flexible repayment tenures of up to 84 months and competitive interest rates starting at 10.99% p.a. This approach not only helps establish your credit but also provides manageable financial leverage.
Use credit wisely
Initially, it's wise to keep your spending conservative. Aim to utilise less than 30% of your total available credit limit. This low utilisation rate signals to lenders that you are not heavily dependent on credit, which can positively impact your credit score.
Pay bills on time
Timeliness in paying your Credit Card and loan dues is crucial. Delays or missed payments can significantly harm your credit score. Consider setting up direct debits or automated payment plans to ensure you never miss a due date.
Monitor your credit report
It's essential to regularly review your credit report for any discrepancies or unauthorised transactions. You are entitled to a free report from major credit bureaus annually. Promptly correcting any errors can help to improve credit score quickly.
Increase your credit limit
As you establish a pattern of timely payments and responsible credit usage, consider requesting an increase in your credit limits. This can enhance your credit utilisation ratio, a key factor that influences your credit score.
Diversify your credit
Building a diverse set of credit accounts can also help to improve Credit Score. This might include managing multiple Credit Cards, a Personal Loan, or an Auto Loan. Different types of credit demonstrate your ability to manage various credit arrangements effectively.
By following these steps, you're not just working towards building a good credit score; you're setting the foundation for healthier financial habits that will benefit you throughout your life.
Also Read: What is the minimum CIBIL Score required for a Car Loan?
Conclusion
Building your credit score is a journey that requires patience, discipline and consistent effort. By starting with accessible credit options, maintaining low credit utilisation and paying bills diligently, you can gradually improve your credit score.
Remember, a good credit score opens up a world of financial opportunities that can ease and enhance your life.
Disclaimer: This article is for information purpose only. The views expressed in this article are personal and do not necessarily constitute the views of Axis Bank Ltd. and its employees. Axis Bank Ltd. and/or the author shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision
