Lenders look at several factors before sanctioning a loan. The credit history is one such essential factor they consider, as it helps them comprehend the borrower’s previous financial practices.
Why Credit History Matters
The credit history shows lenders how the borrower has managed credit.
It helps them assess the borrower’s capabilities of repaying a new loan. By using credit responsibly and making regular loan payments, one can gain the trust of lenders and get favorable rates on loans.
The borrower’s credit history directly impacts his/her credit score as it assesses their creditworthiness. If you've never borrowed before, lenders will know minimal about your repayment history. This usually results in tighter terms or even loan rejections. Therefore, when applying for credit, having a good credit history becomes essential. In the event that you do not yet have any credit history, here are several strategies to begin establishing a good credit score.
Advertisement
1. Get a Secured Credit Card
A secured credit card requires a security deposit to serve as collateral for the credit limit. When you use this card and pay your payments on time, credit bureaus see favorable activity. Lenders will see that you can handle credit responsibly. This will also help you build your credit history and progressively increase your credit score.
2. Make Timely Payments
Consistently making timely payments on bills, loans, and credit card dues helps in establishing a strong credit history. This timely payment gets reported to credit bureaus, gradually building a track record that shows lenders that you can manage repayments well. It gradually raises credit scores and improves lender trust which facilitates and enhances future lending availability.
Advertisement
3. Maintain Low Credit Utilisation
Credit utilisation is the ratio of your current credit balance to your credit limit. Maintaining this ratio below 30 per cent shows lenders that you are using credit sensibly and don’t depend too heavily on borrowed funds. A low utilisation rate reflects strong financial discipline, which can positively impact your credit score and make lenders more confident.
4. Take a Small Loan from a Bank or NBFC
You can build your credit history by taking a small personal loan from a bank or any other lender and make timely payments on it. Since lenders report loan repayments to credit bureaus, your timely repayment would show that you can manage borrowing. This helps raise your credit score and strengthens lender confidence, opening doors for better credit options later.
Advertisement
5. Monitor Your Credit Report Regularly
Regularly checking your credit report lets you spot and fix any mistakes that could hurt your credit score. It also allows you to stay aware of your progress as you build your credit history. An awareness of your credit report will help you make good decisions regarding your credit as well as maintain a healthy credit profile and avoid unnecessary surprises.
Creating a credit history requires determination and responsible financial habits. By keeping a good credit history over time, you can show lenders that you are reliable. This may make it easier for you to obtain credit or loans with better terms.
