How to Build a Credit Score with No Credit History

Building a good credit score is like building muscle. It takes work, needs to be done regularly, and won’t happen overnight. But even if you’re starting from scratch with no credit history, don’t worry! This guide will show you exactly how to get started, step-by-step.

No Credit History? Build Your Credit Score From Zero

Understanding Your Credit Score

First, let’s understand what a credit score is. Imagine a number between 300 and 900, with a higher number meaning you’re a more reliable borrower in the eyes of lenders (banks and other financial institutions). This number is based on your credit history, a record of how you’ve handled borrowing money in the past.

Here’s what affects your credit score:

Paying bills on time: This is the most important factor. Late payments on your phone bill or rent can hurt your score.
Credit utilization: This refers to how much credit you’re using compared to your credit limit. Ideally, keep it below 30% of your credit card limit.
Credit history length: The longer you’ve had credit accounts open and managed responsibly, the better.
Credit mix: Having a healthy mix of credit cards, loans (like a two-wheeler loan), and other accounts can help your score.
New credit inquiries: Every time you apply for a credit card or loan, it leaves a mark on your credit report. Too many inquiries in a short time can lower your score.

What is a Credit Score History?

Your credit score history is a record of your borrowing and repayment behaviour over time. It reflects how responsible you are with credit and helps lenders assess your creditworthiness when you apply for loans, credit cards, or other forms of credit.

Why Credit Scores Are Important?

Loans Made Easier: A good credit score helps you get loans for things like houses, cars, or unexpected expenses. Lenders see a high score as a sign you’ll repay your loan responsibly.
Saving on Loans: With a good credit score, you often qualify for lower interest rates on loans. This means you pay less in interest overall, saving you money in the long run.
Credit Card Perks: A good credit history can get you approved for credit cards with better rewards and benefits.
Finding a Great Place to Live: Landlords sometimes check credit scores to see if you’re financially responsible. A good score can help you rent the apartment you want.
Lower Insurance Costs: Some insurance companies consider your credit score when setting your rates. A higher score might mean you pay less for insurance.

Top 7 Steps to Build a Credit Score with No Credit History

Now that you understand the basics, let’s get down to building your credit score! Here are some key tools you can use:

Step 1: Secured Credit Card

Imagine a credit card that asks for a deposit upfront, like a security blanket. This is a secured credit card, a great option for beginners with no credit history. The Fixed deposit amount becomes your credit limit, and by using the card responsibly and paying your bills on time and in full each month, you start building a positive credit history. Keep in mind that some secured cards have annual fees, so compare options before choosing one.

Popular secured credit cards in India

IDFC First WOW Credit Card: Great for beginners, no annual fee, rewards points, trusted bank (IDFC). Get add-on cards and pay bills easily. ¹
Axis Insta Easy: No annual fee, simple option, credit limit linked to your savings in Axis Bank (good for existing customers).
OneCard: Cashback rewards, No annual fee, good for earning benefits while building credit.
ICICI Credit Card Instant Platinum: Higher credit limit, rewards program, No annual fee (ICICI is a major private bank).
Kotak 811 #DreamDifferent: Perks like movie discounts, and No annual fee, are good for those who want some extras (Kotak Mahindra is a leading private bank).

Step 2: Borrow Good Habits from an Authorized User

Know someone with a squeaky-clean credit history? You might be able to “borrow” some of their good habits! Ask them to add you as an authorized user on their credit card. Their on-time payments and responsible credit use will then reflect on your credit report, giving you a head start. Just remember, this relies on their good credit management, so choose wisely!

Relying on someone else’s credit history can backfire if they miss payments or manage their credit poorly. It’s important to choose someone you trust and monitor your credit report regularly.

Step 3: Credit Builder Loans

These are special loans designed to help people build credit. The twist? The loan amount gets deposited into a savings account that you can’t access until you’ve finished making all your payments on time. This way, you save money while also building a good payment history that gets reported to the credit bureaus.

These can be helpful, but they typically come with lower loan amounts compared to traditional loans. This might limit their effectiveness in significantly boosting your credit score quickly.

Step 4: Utilize Alternative Data

While not directly affecting your credit score yet, paying your rent, phone bills, and utility bills on time consistently shows that you’re responsible with your finances. Some credit bureaus are starting to consider these payments when calculating scores, so it’s a good habit to develop anyway.

Step 5: Choose Student Credit Cards

If you’re a student, there are special credit cards designed for you, often with lower credit limits and easier approval requirements. Use them responsibly and make your payments on time to start building credit while you’re still in school.

Step 6: Monitor Your Credit Report

Just like keeping an eye on your bank account, it’s important to check your credit report regularly. You can get a free copy from each of the three major credit bureaus once a year. This helps you spot any errors or suspicious activity and get them fixed quickly.

Step 7: Patience and Responsibility are Key

Building a good credit score takes time and consistent effort. Be patient, stick to your plan of making payments on time, and avoid going overboard with credit card debt. By following these steps and managing your finances responsibly, you can build a strong credit score that opens doors to a brighter financial future.

Bonus: How to Build Credit Score with Pricemint

Pricemint Credit Score Builder can be your partner in building a good credit score, even if you’re starting from zero. Here’s how it helps for free:

Free Credit Monitoring: Track your credit score regularly and see how it changes over time. This helps you identify any issues that might affect your chances of getting loans or credit cards.
Free Credit-Building Tools: Pricemint might offer free access to tools like secured credit cards or buy-now-pay-later options. By using these responsibly, you can build a positive credit history.
Free Personalized Tips: Get advice tailored to your situation on how to improve your credit score. This might include managing debt, using different types of credit, or making sure you pay bills on time.
Free Educational Resources: Learn more about credit scores and how they work. With better financial knowledge, you can make informed decisions that can help your credit score in the long run.
Free Goal Setting: Set goals for your credit score and track your progress. This keeps you motivated as you work towards building a healthy credit profile.

Article References

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FIRST WOW Against FD Website: IDFC Bank