How To Build a Credit History When You Don’t Have Any Existing Credit Card?

In order to achieve financial stability, it has become really essential to have a good credit score these days. For those who don’t know, a credit score is a number that represents how creditworthy you are or how responsible you are as a borrower. Your credit score depends on your credit history, which includes your past payment behavior, credit utilization, and a lot more factors and there are high chances that you will get approved for a credit card only if you have a good credit history & score. But, how can you build a good credit history without having a credit card as you can’t get a credit card without it? This article is the answer to this question. Keep reading to know how to build credit history without credit cards.

Ways To Build Your Credit History

Get a Secured Credit Card

Secured Credit cards are the cards that are issued against a fixed deposit. You need to deposit a fixed amount to the card issuer in order to get a credit card and they keep this amount as a security deposit so that they can use it if you default your payments. However, this amount is refunded to you when you close your credit card account if you have used your card responsibly and paid all your dues. Getting a secured credit card is one of the best and easiest ways to build your credit history from scratch. Just getting it is not enough, but you need to make sure that you use it wisely and make all your payments on time so that you can build a good credit history and get approved for an unsecured credit card.

Take a Personal Loan

Credit cards are not the only option to build credit history, but you can also do the same by getting a personal loan from an authorized financial institution. However, it can be a bit challenging to get a personal loan without a credit history, but there are some lenders who will provide loans to you but most probably with high-interest rates. You can take a small personal loan and pay all its EMIs before the due date to build a good credit score. Also, if you purchase something on your debit card EMI and then make all the payments on time, your bank may provide you with a credit card as they’ll consider you a responsible individual.

Signup For Buy Now Pay Later/Postpaid Options

Nowadays, almost all the popular e-commerce websites provide their customers with the buy now pay later option, which is very similar to credit cards. You can make purchases using their money and then pay later on time. However, all the customers get a different Credit limit, but it can be sufficient enough for you to build your credit score. For example, you can use Paytm Postpaid. In this, you will get a credit limit (maybe Rs. 1,000 or even less initially), which you can use for multiple purposes, including mobile/DTH recharges, transactions at departmental stores, restaurants, etc. Flipkart Pay Later is also a similar and convenient option. Again, just make sure to repay your bills on time.

Understand All The Factors Affecting Your Credit Score

Payment History – Your payment history is the biggest factor that affects your credit score as 35% of your score depends on your payment history. So, in order to build a good credit score, you must make sure to pay your credit card bills, loan EMIs, etc on time.

Credit Utilization Ratio – Your Credit Utilization Ratio is the second most important factor that affects your credit score. It is advisable to use only 30% or less of your total credit limit to maintain a good credit score as using most of your credit limit can make your card issuer consider you as a risky borrower.

Length of credit history – The length of your credit history should be large or the average age of your credit accounts should be good in order to have a good credit score. Therefore, it is not advisable to close your credit accounts even if not in use.

Credit Mix – You should try having different types of credit like multiple credit cards, personal loans, home loans, etc, rather than having just one credit card. Managing different types of credits responsibly represents that you are creditworthy.

No. of Hard Inquiries – When a card issuer/moneylender checks your credit profile before approving your credit application, it is known as a hard inquiry and too many hard inquiries within a short time period can affect your credit score badly as it shows that you are very much in need of money and are a risky borrower.

Bottom Line

If you are just entering the world of credit cards and don’t know how to start, you need not worry about how to build credit history. There are several easy ways that can help you build your credit history initially. You must go with one of these methods if you don’t have a credit history as building a good credit score can help you a lot in the future. Getting secured credit cards can be considered the most convenient option as it will not only help you build your credit score but will also make you understand how to use a credit card wisely and responsibly. But, if you are someone who doesn’t want to deposit an amount to get a credit card, it will be good for you to go with the other options.

In case of any further queries/doubts, you can ask in the comment section below!