How to build a credit history as a first-time borrower in India

Representative image

Most young earners and new graduates face the same problem when they apply for their first loan or credit card: “No credit history.” Lenders don’t know how you behave with borrowed money, so they either reject the application or offer higher interest rates. The good news is that building a solid credit history in India is straightforward if you start small, stay consistent and avoid the mistakes that trip up most beginners.

Getting a credit card is usually the simplest way to begin your credit history. If banks reject your application for a regular card, ask for a secured credit card backed by a fixed deposit. Many banks offer these with minimal paperwork, and they function just like normal cards. As long as you use the card sensibly and pay on time, your credit record starts building immediately.

Once you get your card, resist the urge to use the entire limit. A good rule is to stay under 20-30 per cent of your limit every month. So if your limit is Rs 25,000, keep monthly card spends under Rs 7,500. Credit bureaus view high utilisation as stress, especially when you’re new to credit. Keep usage modest and predictable.

The single biggest factor in credit scoring is repayment behaviour. For a new borrower, even one missed payment can hurt your score for months. The easiest fix is to set up an auto-debit for the full amount of your credit-card bill. Paying only the minimum amount is a trap—your bank will charge interest on the rest, and that interest quickly grows out of control.

After six to twelve months of clean credit-card history, consider taking a small personal loan or consumer durable loan—only if you genuinely need it. The purpose is to show that you can handle different kinds of credit, not to borrow just for the sake of it. A small laptop EMI or a well-timed personal loan that you repay early helps diversify your credit profile.

Every loan or card application creates a “hard enquiry” on your credit report. Too many enquiries in a short period make you look credit-hungry. Space out applications and avoid signing up for every pre-approved offer that pops up in your inbox or app.

Even new borrowers can have errors in their reports—wrong PAN links, old addresses, or duplicate entries. Download your free annual reports from CIBIL, Experian, Equifax and CRIF High Mark once a year. It’s easier to correct mistakes when your file is thin rather than later, when you are depending on your score for a big loan.

Simple behaviours create a strong early credit footprint. Pay every bill on time, keep your utilisation low, avoid unnecessary debt, and never roll over your card balance. Within 12-18 months, you’ll see your score cross into the healthy range, making future loans—home, car, education—cheaper and easier to access.

The strongest borrowers aren’t those who borrow the most, but those who borrow the smartest. If you treat your first card or loan as a long-term responsibility rather than quick spending power, you can build a credit profile that supports every major financial decision in the years ahead.