Behavioural biases that damage your investments!

Are you one of the many people who have never applied for a credit card or a loan in their lives? If you answered yes, it is quite likely that you do not have a credit history. A good credit score is essential for obtaining a wide range of credit cards and speedy loan approvals.

However, to qualify for a line of credit, you must first correctly establish a credit history. Here are a few pointers that will assist you in establishing an excellent credit score:

1. Get a credit card

The majority of lenders and credit card firms are reluctant to offer money to persons who lack a debt history. The only way to build up a good reputation is to take out a loan. To determine whether or not you will be able to pay back the loan amount on time, lenders look at your credit history.

Without lenders ready to lend you money, how can you build up your credit score? A credit card is one of the most prevalent financial items that can help you get started on the path to better financial health. Your best bet for building up your credit score on your own is to apply for a credit card.

2. Become a registered user

Using an unsecured credit card is yet another technique to raise your credit score. Those who have no credit history are out of luck when applying for an unsecured credit card. As an authorised user of someone else’s credit card, they can still build their credit score. Your spouse or other family members can add you as an authorised user on their credit card if you ask them to do so. If you’ve never used credit before, you should exercise extreme caution when using someone else’s credit card as an authorised user, as even the smallest mistake can significantly influence that person’s credit score.

3. Apply for one credit card at a time

Applying for more than one credit affects your credit score. Instead of applying for several credit cards, use the one you already have to show that you can manage your finances. Pay your credit card debt when it becomes due, and never carry a balance.

4. Use card regularly

Credit agencies don’t give people a credit score if they’re just starting out with credit or if their credit history isn’t significant enough for them to be considered. You must use your credit card frequently if you want to build a good credit rating. Regular usage of credit cards while making timely repayments is an excellent way to develop a positive credit history.

Use your credit card once a month to keep your account current and avoid the card getting cancelled. This advice is valuable for people who already have a credit history and those just starting to develop their own. As a result, it is recommended that you use your credit card once a month is acceptable.

5. Understand your credit limit

Your credit card comes with a credit limit (the maximum amount that credit card lenders allow borrowers to spend). As soon as you start using a credit card, the credit bureaus look at your balance-to-limit ratio.

The ratio of your credit card debt to your credit limit is referred to as the “balance-to-limit ratio” or “credit utilisation ratio.” Your credit utilisation ratio tells investors how well you manage your credit. It’s best to keep your credit utilisation ratio between 30% and 40% of your entire credit limit.

6. Pay on time your EMIs

To prepare your credit report and score, lenders regularly submit your financial information to credit bureaus. According to the credit bureaus, debt payback history is the most critical factor in determining a credit score.

Because of this, a missed or delayed payment on a loan or credit card instalment can have a impact on your credit score. Maintaining on-time and complete payments is a surefire way to raise your credit score quickly.

7. Apply for an unsecured credit card after a year

A credit report is typically generated after six months of an individual’s consistent use of a credit card. If you want to get a secured credit card, you’ll need a year’s worth of good credit history to show lenders that you’re capable of managing your money.

Secured credit cards should be replaced with unsecured ones because the latter does not require you to provide for any kind of collateral or security. A secure credit card, on the other hand, has a higher credit limit and better benefits.

8. Choose a longer tenure

Try to get a loan with a longer repayment term wherever possible. There are many ways to keep your EMI low while still making on-time repayments. Credit scores rise when EMI payments are made on time and in full.

9. Consistency is the key

Credit history is not created overnight. How frequently and effectively you use and manage your credit can take anywhere from six months to a year. Even more, time is needed to achieve a high credit score. If you want to obtain and maintain a credit score in the “great” area, all you have to do is keep working at it.