If I am first time applicant as I have just joined the work force, how can I have a history? Questioned my colleague Shweta. This took me by surprise early morning. So which history she was referring to? I just shook of my head and quipped Credit history? She said yes. And she is right in getting upset over this.
The case in question is of my colleague Shweta who applied for a credit card on the website of one of the biggest private banks in India. She was working for nearly a year after passing out of a B-School and was yearning for a credit card to splurge on these monsoon sales all over the city. After applying online for the credit card, Shweta got a call from one of the executives of the bank who verified her details she had provided in the online application. After verification, bank’s executive asked her is if she has a credit card or a loan from any other bank. She did not have any, so she said no. To this the executive informed her that she couldn’t get a credit card. A highly surprised Shweta questioned Why? The executive replied that she couldn’t get a credit card, as she doesn’t have one.
This may have surprised many of you as well. Indeed it’s a big vicious circle! The main reason of denial here is that Shweta doesn’t have a credit history, thus no repayment track record. Lenders generally refer to a credit information report from CIBIL for granting credit in any form. CIBIL is the credit bureau which collects information from various banks and NBFCs across India about the repayment history of individuals for the loans or credit card issued to them. Anyone who has never taken a loan or doesn’t have a credit card will have no repayment track record so they are unable to get a credit card.
What should you do to build your credit history?
For this you can start by taking credit card against fixed deposits offered by various banks. Limits of these credit cards are typically around 60% of the value of the fixed deposit. These are secured credit cards and in case of any default the banks can use the fixed deposits to recover the credit card dues. Once you have this credit card, you should create a track record by paying the bills on time. You can easily get a credit card that is unsecured after a payment track record of at least 12 months. You should make purchases in small amounts from your credit card but regularly. This would create a track record with CIBIL and the banks will know that you will pay off your bills regularly without default.
In case you have some gold with you, then you can also take loan against gold. Please make sure that you take the loan from a bank and not from a NBFC dealing exclusively in gold loans to make sure that the repayment is reported with CIBIL.
You should try this method, as an alternative to taking a personal loan or else this method will create unnecessary liquidity, which you don’t want. Again pay off the loan in time, so that you will also create a payment history with CIBIL.
You can also take a loan to buy a car or a home. Since these are secured loans, getting a loan for a person without a credit history is much easier. Since the loan is secured, the lender in case of default can sell of the asset (car or home) and recover its outstanding loan amount.
Taking a credit card against a fixed deposits or a gold loan will help you to create a credit history over a period of one year. Once you have build a payment track record, then you can get a credit card which is unsecured or any other loan easily.
Shweta was glad to know that at least now she can have that long cherished credit card. She immediately reached her mobile to call her dad & you know why.