Is It Possible to Build Your Credit History Without a Credit Card?

A significant part of entering the adult life is to be as financially stable as possible. Not only does this guarantee a hassle-free experience, but also ensures that you are well-prepared to meet any contingent needs, effortlessly. So, how exactly do you go about doing this? Well, the answer is simple. You need to earn a decent income, which helps you take care of you and your family’s living expenses, and you need to build a positive credit score.

Let us first understand how a credit score is determined:

Zero Credit Score –

If you have no Credit Card or no loan under your name.

Positive Credit Score –

If you have a Credit Card or a loan, and have been paying your bills/EMIs (Equated Monthly Instalments) on time, without faltering.

Negative Credit Score –

If you have a Credit Card or a loan, and have not been able to pay the bills/EMIs on time. It is a common myth that a favourable credit score can only be built through the Long-Term Use of Credit Cards; however, this isn’t wholly true. In fact, the judicious use of a Credit Card constitutes only 10% of your score. The better part of the credit rating depends on the variety of accounts that you have under your name, how well managed they are, and your ability to repay short-term and long-term loans without any defaults. Hence, if you don’t have an SBI Credit Card or any other cards, and still wish to build credit, all you need is a distinct approach! The following tips can help you do so effortlessly.

1. Short-Term Loans

The most efficient alternative to using a Credit Card is to use a loan to your advantage. You can always avail a short-term loan, which can be repaid in a period of 1 to 5 years. Such credits include, but are not limited to:

• Personal Loans
• Business Loans
• Car Loans
• Travel Loans

Once your lender approves the loan, all you need to do is repay the EMIs (Equated Monthly Instalments) as per the schedule without any defaults. Do this for six months or more, and your way towards a favourable credit score will come to light.

2. Mortgage Loans

While you may not be eligible for a Housing Loanwithout a solid credit history, you can Apply for a Loan Against Property. As far as the amount of the investment is concerned, you can get approval for as much as 50% to 90% of the value of the property that your mortgage. Since loans against property are a secured loan, the rate of interest will be comparatively low, thus making it easier for you to pay the EMIs regularly. Moreover, almost all Loans against Property get reported to credit bureaus, which will ensure that your financial stability and discipline gets recorded, thus contributing towards your favourable credit rating.

3. Repayment of Educational Loans

Most student loans only need you to start paying the interest upfront. The actual repayment begins once you have acquired a job after the completion of your degree course. A great way to build a good credit score is by starting your repayment while you are still studying. Not only will it reduce the number of years that you need for repayment, but will also ensure that you pay a significantly lower amount towards the interest. However, you must only take this approach if you are exceedingly sure that you will be able to pay the EMIs on time, every month. Failure to make timely payments can and will result in a negative score, thus defeating the entire purpose.

4. Acquiring a Secured Credit Card

While you may not be eligible for a general Credit Card yet, you can always secure an asset in exchange for a Secured Credit Card, also known as a credit builder loan. In this case, your credit limit will be equal to 80% or more of the value of the asset that you have given as collateral. Once you start using the card, your timely payment history will be recorded and reported to the credit bureau, thus reflecting positively on your credit score.

Now that you are aware of some of the convenient ways of building a conducive credit history, we are sure that you will take the requisite measures to do so. However, you should be aware of the fact that taking loans merely with the objective of improving your credit history can exponentially increase your financial burden. Moreover, if you fail to pay the EMIs as directed, you may end up worsening the situation and hurting your credit rating. Hence, it is best that you tread carefully! To help matters, the best way is to ensure a better discipline when it comes to your transactional behaviour, as many banks and lenders rely on the same before considering you for various credit alternatives.

Also Read: 5 Benefits of Using a Credit Card for Frequent Travellers