With your first job, you begin to build a secure financial future. Besides saving money, one way to do that is by creating a solid credit history, directly impacting your eligibility for loans and other forms of credit. A good credit history proves your financial responsibility and makes lenders more confident in extending credit to you. Here's how you can achieve that:
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Start with a Credit Card
Owning and using a credit card responsibly is one of the easiest and most effective ways to build a credit history. Begin with a secured credit card. Make small, regular purchases and pay off the balance before the due date to showcase your repayment capability.
Pay Bills on Time
Timely bill payments (credit card, utility bills, and loan EMIs) contribute significantly to your credit score. Missing payments can negatively impact you, so set up reminders or automatic payments to ensure you're never late.
Maintain a Low Credit Utilization Ratio
The credit utilization ratio is the amount of credit you've used compared to your credit limit. Aim to keep it below 30% to show you can manage credit responsibly without maxing out your limits.
Diversify Credit Types
A mix of credit types (credit cards, personal loans, and secured loans) can positively influence your credit history. It indicates your ability to manage different types of credit responsibly. But before opting for a loan, thoroughly understand what it entails. Read here.
Avoid Multiple Loan Applications
Applying for multiple credit cards or loan within a short span can raise red flags for lenders. Each application leads to a hard inquiry on your credit report, temporarily lowering your score.
Regularly Check Your Credit Report
Obtain your credit report from bureaus such as CIBIL, Experian, or Equifax. Review it for errors or discrepancies and rectify them promptly. A clean and accurate report reflects positively on your creditworthiness.
Demonstrate Stable Employment
Lenders assess your stability before extending credit. A consistent employment history can reflect positively on your ability to repay loans. Stick with your first job for as long as you can.
Building a good credit history takes time. Follow these steps, and it will improve your eligibility for loans in future.
