New-to-credit? Here's how to maintain a healthy CIBIL score

For new borrowers, building a healthy credit score and maintaining the same might come across as a daunting task. However, every task becomes easy when it is started on the correct note. For new borrowers, more commonly known as new-to-credit (NTC) consumers, it’s essential to understand the importance of having a healthy CIBIL Score and Report, as it can impact your ability to get loans and credit cards at lower interest rates.

To better understand it, the term new-to-credit borrowers refers to those individuals who have had no prior credit history and have just availed their first-ever traditional credit product such as a consumer durable loan, personal loan, agricultural loan, two-wheeler loan, gold loan, home loan, or other credit product. A recent global study by TransUnion also highlights that new-to-credit consumers are key contributors to sustainable financial inclusion and economic growth in India.

Understanding your CIBIL score and report

The CIBIL score is a three-digit number ranging from 300 to 900, while a CIBIL Report is a detailed summary of a person’s credit history. The CIBIL score is a numeric representation of a person’s creditworthiness. Both the score and the report are calculated based on your credit history, which includes information such as your credit accounts, payment history, credit utilisation, and length of credit history. The Report goes one step further and also includes information about your credit accounts, payment history, and credit inquiries.

The lenders will use your CIBIL Score to evaluate your likelihood of repaying your debts on time, and the Report will give the lender a sense of your creditworthiness and help making lending decisions. 

Regularly monitoring your credit report is crucial to avoid negative impact on your financial health caused by errors or fraud. By identifying inaccuracies or fraudulent activity, you can take action to protect yourself, improve your credit score, and prevent difficulties in obtaining credit or loans. 

Building good credit health 

Apply for a consumer durable loan: A consumer durable loan is a type of loan that can be used to purchase durable goods such as appliances, electronics, or furniture. These loans are typically easier to obtain than other types of loans and can help new-to-credit consumers establish a positive credit history. 
Use the Buy Now Pay Later option: BNPL options are becoming increasingly popular and it is a good way to start building credit health by using it for low-ticket items. However, it is important to use this option responsibly and ensure that payments are made on time.
Try to apply for a credit card from the same bank where you have a salary account: This process can increase the chances of approval as banks, where consumers have a salary account, have access to their financial history. However, this does not mean that consumers should not explore other banks. It is important to compare credit card offers from different lenders and choose the one that best suits their needs

Start with a secured credit card: A secured credit card requires you to deposit money as collateral, which then becomes your credit limit. Using a secured credit card responsibly can help you build a positive credit history
Access credit responsibly: It’s important to access credit responsibly and not take on more debt than you can handle. Use credit for necessary purchases and make sure to pay your bills on time to establish a positive payment history

Keep your credit utilisation low: Your credit utilisation is the amount of credit you’re using compared to your credit limit. High credit utilisation can negatively impact your credit profile. Try to keep your utilisation well within your credit limits to ensure there is no negative impact on your Score.

Maintaining a good credit profile

Make payments on time: Late payments can damage your credit profile and make it difficult to get approved for credit in the future. Set up automatic payments or reminders to ensure you don’t miss even a single payment.
Monitor your credit report: Regularly check and monitor your credit report to ensure that all the information is accurate. Checking your own score does not impact it and in fact, is considered a good credit practise.
Avoid applying for too much credit: Applying for too much credit in a short period of time can negatively impact your credit profile. Only apply for credit when you need it and do your research to find the best options for you.
Avoid maxing your credit cards: Maxing out your credit cards can negatively impact your credit score and make it difficult to get approved for credit in the future. 

By starting small, understanding how credit scores and reports work, being a responsible borrower, and taking steps to improve your credit score, you can set yourself up for financial success in the future. 

(The writer is Sr. Director and Head of Consumer Interactive (Direct-To-Consumer) India, TransUnion CIBIL)