In the absence of a credit history you won’t have a credit score, which directly impacts your chances of getting credit.
Adopting a healthy lifestyle both physically and financially shouldn’t be limited to only the start of a new year. The level of concern and attention that you give to your physical health is also required towards your financial wellbeing, and a good place to start would be your credit health. Maintaining a good credit can help open the door to achieving important milestones in life, such as buying your first car or owning a house. A higher credit score can help you get credit at lower interest rates. And soon, having a good credit could also impact other things in your life such as your ability to rent an apartment, getting utility services in your name, even increasing your prospects of landing a job.
All it takes to make a difference in your current credit health situation is the right mindset and a solid action plan. Here are a few healthy credit habits to help you take control of your finances and establish good credit.
Make consistent and timely payments
Timely and consistent payments will majorly impact your credit score. It is strongly recommended that you do not skip repayment cycles. If you fail to pay your credit card bill before the due date, you may have to pay higher interest and an additional late fee. In addition to the monetary penalty, your credit score also gets affected if you default on monthly payments. Lower credit score will impact your chances of getting credit in the future difficult. This issue usually can be resolved by ensuring that you maintain a balance of income in proportion to your spending and make timely payment on the outstanding amounts.
Always try and pay more than minimum due
Minimum payment is a convenience that credit card users get, but this comes at a high cost. It is always advisable to pay more than the minimum. There are many benefits of paying more than the minimum amount due each month. This will save you additional interest money accrued on outstanding balance, increase your available credit, and potentially raise your credit score by decreasing your credit utilisation ratio (CUR).
Address and manage your debt properly
It is important to manage your debt in a proper manner. If your debt situation is out of hand, you will have to address the problem. There are some actions you can take, including changing behaviour that contributed to acquiring too much debt in the first place, prioritising debts to more effectively manage them, paying off the debt using non-performing or low-performing investment plans. The first place to start is by creating a budget that outlines your income and your expenses. This will help you map how much you have available to spend, and how much debt you can afford to take on and how you will repay them.
Build a credit history
In the absence of a credit history you won’t have a credit score, which directly impacts your chances of getting credit. Having no credit history means that you have no prior experience with credit and this in turn will make lenders hesitant in issuing you credit, as they won’t be able to evaluate your ability to repay the borrowed money. If you don’t start working on building a credit score early on in your life, in the future at the time of need you’ll face an uphill battle applying for a loan or a credit card.Having no credit history may affect you in the following ways:
- No good deals on loans: Since you don't have a credit history, lenders won't be able evaluate your capacity of repaying the borrowed money. Even in case Lenders agree to approve your loan you will not get favourable deals on it and the loan may also have more stringent policies.
- Higher rate of interest: Some lenders have started charging differential rates depending on a customer's credit score. Hence, for applicants with zero credit history chances of availing loans at lower rate of interests will prove to be extremely difficult.
- Missing out on benefits or offers on credit cards: Lenders provide many attractive offers and reward points programme, EMI offers, and other discounts and cashback offers to customers on purchases made using their credit card. However, these are only available to people with good credit scores. In such a case, having no credit history means that these offers will not be available to you.
- No pre-approved Loan: Pre-approved loans and credit cards are offered based on your credit score. These loans generally have a lesser processing time as compared to other loans. But without a credit history, it is highly unlikely that any lender will provide you a pre-approved loan.
- Lower credit Limit: The credit limit on your card will be lower if you have no prior credit history. Even if you have a higher salary with a zero-credit history, you will not get a higher credit limit on your credit card.The author is the Founder & CEO of IndiaLends—a fintech startup based in New Delhi. Views expressed are personal.