Why Are People Generally Averse to Credit?
Despite having multiple benefits of building a good CIBIL score, many young Indians avoid taking credit like it’s the plague. Let’s deep into why:
- Debt Dread: There might be examples of poor debt management that was seen that makes many associate taking credit with financial strain.
- Knowledge Gap: There is a misconception that having no credit card means you’re on a clean slate with respect to finances. We’ll dive into that myth as you read further!
- Mistrust with Banks: There are a lot of assumptions on how banks trap their customers with hidden fees and interest rates and so, avoidance seems to be the best way to deal with it.
- Jargon overload: All of these financial terms and their meanings can really bog you down and make you feel overwhelmed, postponing decisions that could have been the seeds to fruitful futures.
- “I’ll think about it later” Mentality: Most people think that credit scores are relevant only before applying for loans but they have a deep impact much earlier like when it comes to travel (visa documents), rentals and sometimes even job opportunities!
Common Myths About Credit Scores Busted
There are many misconceptions about credit scores floating around. Let’s clear up some of the biggest ones:
Myth 1: Checking Your Own Credit Score Lowers It
Reality: Nope! A "soft inquiry" checking your credit score doesn't affect it at all. Only when a bank checks it for a loan (a "hard inquiry") does it affect it slightly.
Myth 2: You Need to Be Rich to Have a High Credit Score
Reality: How much you make has nothing to do with your score. It's all a matter of how responsibly you manage credit, regardless of income.
Myth 3: Not Having a Credit Card Keeps Your Score High
Reality: No credit history at all means you don't have a score! Using a credit card responsibly is one of the best things you can do to establish your score.
Myth 4: A Bad Credit Score is Permanent
Reality: Your credit score is always improvable with good money management. Nothing is permanent!
Myth 5: Closing Old Credit Cards Improves Your Score
Reality: Closing old credit cards may hurt your score because it decreases your total available credit. Keep accounts open that have no annual fee.
Why Your Credit Score Matters for Loans and Future Finances
Think of your CIBIL score as your financial credibility. It's a three-digit figure (300 to 900) that informs banks and lenders about how reliable you are with credit. The higher your score, the more likely you are to be approved for a loan, a credit card, or even a house on rent.
Here's why your credit score is a crucial aspect:
- Easily Getting Loans: whether a personal loan, education loan, or home loan, a good CIBIL score ensures easy approval.
- Lower Interest Rates: Banks trust you more with a good score, so they lend to you at lower interest rates, what’s better than some extra saving.
- Good Credit Card Offers: Need a credit card with excellent rewards, cashback, or travel rewards? You'll require a good score.
- Smoothened Rental Agreements: Certain landlords verify credit scores prior to renting houses, particularly in metropolitan cities.
- Future Financial Security: Your CIBIL score is also important if you finally begin a business you have long planned for.
Therefore, even if you're not considering loans at present, establishing a good CIBIL score early can pave the way for you in the future!
How to Improve Your Score Within 6 Months
Don't worry if you're beginning from scratch. Everybody starts somewhere! Here's a six-month step-by-step guide to creating your CIBIL score:
- Take a Credit Card (Even a Novice One!)
- If you don't yet have a credit history, begin with a secured credit card (tied to a fixed deposit) or a starter card with a low limit. You can use the filters on our website to choose the right one for you.
- Use it for minor payments such as mobile recharges, grocery bills, or fuel.
- Pay Your Bills on Time, Every Time
- Set up auto-pay for your credit card bills and any EMIs to avoid missing due dates.
- Even a single late payment can bring down your score!
- Maintain a Low Credit Utilisation Ratio
- Don’t use up your entire credit limit. Try to keep your usage below 30% of your total limit.
- Example: If your credit limit is ₹50,000, try to keep your spending below ₹15,000.
- Take a Small Loan and Pay It Back on Time
- A small personal loan (even a short-term one) and timely repayments create your credit history.
- Apps such as Paytm Postpaid, LazyPay, or Slice also report to credit bureaus if used in a responsible manner.
- Check Your Credit Report Periodically
- Go to the official CIBIL website or other bureaus such as Experian to obtain a free credit report.
- Make sure there are no mistakes, such as incorrect defaults or unknown accounts.
- Don't Apply for Too Much Credit Too Quickly
- When you apply for several loans or credit cards within a short time, it becomes suspicious to lenders.
- Space out credit applications and apply only when necessary.
Just follow these easy steps religiously, and you must notice a significant difference in your score within 6 months!
💡Pro Tip: Gamify Your Credit Score Building
To make this process more fun and less stress-inducing, attempt to build your credit for a minimum period of 3 months and then challenge yourself to increase your score by 15 points in your next attempt.
Creating your CIBIL score from zero is not difficult if you take the right approach. Take small steps, be diligent, and in a matter of a few months, you'll be on the road to a financially secure future. Whether you intend to purchase a car, take a home loan, or simply have greater financial opportunities, a good credit score will always be a help.
Good luck with building your financial credibility!