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How you can start building a credit score if you have never taken a loan

Lenders rely heavily on your credit report to make a lending decision.

November 13, 2018 / 09:13 AM IST

Hrushikesh Mehta

Your credit score is a 3-digit number that ranges from 300 to 900. The effect it has on your ability to build a strong financial life is very powerful. Your score is derived from your credit report which is used by lenders to determine how quickly you can get a loan and at what interest rate.

If you have never taken a loan you won’t have a credit score or report. This presents a unique problem - some lenders will not provide you with a loan or credit card because you have no payment track record for them to base a lending decision on.

Lenders rely heavily on your credit report to make a lending decision. At the same time, your credit score serves as a simple tool for you to understand whether you meet a lender’s requirements.

While there are a number of credit scoring firms working on alternative means (payment information, social media and SMS data) to provide you with a credit score, these are not widely used by lenders right now.


There are 3 simple ways to build a credit history and therefore, a credit score:

1. Buy a mobile phone or other consumer durable on installments: Today, when you walk into a store and purchase a mobile phone on installments, you’re being given what is known as a consumer durable loan. This is offered to many first-time loan takers (sometimes they don’t even know they are taking a loan).

2. Apply for a low limit credit card with the bank that has your salary account: The bank that receives your salary account can see that you have a steady income and should be willing to provide you with a starting-out credit card with a low credit limit (Rs. 15,000 to 20,000).

3. Apply for a secured card: These are issued by some banks against a fixed deposit of the same amount as the credit line you are offered. For example, you make a deposit of Rs. 20,000 and are given a credit card with that limit. This protects the bank in case of a default and gives you the opportunity to build your credit history.

Once you have made payments for six months, credit bureaus like Experian and CIBIL, will be able to provide you with a credit score. It’s imperative that you make payments in a timely and consistent fashion. Missed payments on your credit report will lead to a lower credit score and, unfortunately, the opposite of what you were trying to achieve – potential loan rejections or higher interest rates.

Previously, only one of the credit bureaus could provide you with an accurate credit score. This all changed in 2015, when the RBI mandate for lenders to share data with all bureaus came into play. You should keep in mind that lenders consider 780 (Experian Credit Score) and 750 (CIBIL Credit Score) to be a ‘good’ score.

Now, there are lots of companies that can give you access to these credit scores for free, forever. It is your data and you shouldn’t have to pay to see it. It’s important to make sure that your score accurately represents your financial reputation.

Given that it’s free and can be accessed online in minutes, what’s stopping you from tracking your score today?

The writer is Country Manager – India of ClearScore
Moneycontrol Contributor
first published: Nov 13, 2018 09:12 am

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