To enjoy easy credit tomorrow, it is a must that you have a good credit history and score today. But who says you need to borrow to build the score? It is a big myth. You need not fall into the debt trap for building a length of history. You can certainly build an excellent credit score without borrowing money. Here goes a simple 3 step process to build CIBIL score without a loan.
First things first, understand how to check CIBIL Score. You need to fulfil following points:
- Pay all your dues on time. Being regular on your payments gives 35 % boost to the score.
- Keep your credit utilisation and loan to income ratio low. This adds up to 30 % to score.
- Have positive credit history. The age of your credit length also brings positive impact on score. It can help score up to 15 %.
- Have a right mix of secured and unsecured debts. It accounts for 10 % of your score.
- How frequently and recently you apply for loan also impacts your loan approval decision. This again holds 10 % weightage.
Once you achieve understanding on CIBIL Score calculation, your score tends to reach excellent levels.
Now as our goal is to avoid the debt trap, I will share a simple line of credit that will help you build credit history and that too, without borrowing! You can save borrowing decision for the rainy day!
If you guessed it, you guessed it right. It is your credit card.
Yup, you can use plastic money to your advantage and raise the score. To completely use the advantage, make sure you have a card that doesn’t charge you interest when you pay in full beforehand. Thus second step is to get a no interest credit card for building the score. You can compare credit cards offered by different banks online. As per your needs you can choose one.
We all have fixed monthly expenses such as mobile bill, TV connection bill, water bill, electricity bill and many more bills. All you have to do is pay one or more of these expenses through your credit cards month on month.
Say, you choose to pay your phone bill with a credit card. If you do so, every month you would build a balance on your credit card statement. By paying out the expenses in full by your card, you would technically repay the monthly outstanding credit on card. It is best to automate the process so that every month a timely transaction is fixed on your card.
This way you would build good history every month, without borrowing anything.
Next, note another point of advantage here. Say your credit card has limit of Rs 50,000. Your monthly telephone expense is Rs 1000. Now even if you set automatic payment method, every month you are using just Rs 1000 on the limit of Rs 50,000. This factors plays a very strong role in boosting your score.
The line of benefits do not end here. Not to forget the cash back and other add on benefits you get on credit cards. So you are not borrowing but getting paid to build your score!
Within a year or two, you would be able to reach excellent credit score just by being regular on your payments and not using much of the limit. However keep certain points in mind before you follow the above steps.
- Always be regular on your payment. Missing any payment would bring bad history, beware! The whole purpose of this exercise will fail if you miss the payment.
- Do not be co guarantor to a friend or relative. Remember you are saving your credit potential for future when you would apply for an auto loan, home loan or personal loan. If your co-applicant delays or defaults it would directly hurt your credit report. So do not take a chance by signing as a guarantor.
- As important is your credit score, as is your spouse’s score. It is always advisable to not reply on single member score in the family and ensure to build good score of your partner as well.
- Your score is not compulsively everything. Do not over burden yourself for 900 score target. If your score is above 750 it is considered as good score.
I hope now you would easily build an excellent score without borrowing money. All the best!