In India, taking on a big loan is often seen as a sign of financial stability and success. Whether it's a home loan, car loan, or business loan, many Indians aspire to secure a big loan to achieve their dreams and aspirations. However, getting a big loan approved from a formal financial institution is not easy.
Lenders have strict eligibility criteria, such as financial background, scope of future success, current income, credit score and even your qualifications in some cases. One of the most crucial factors that they consider, however, is the borrower's credit score. A good credit score is essential to secure a big loan, and it reflects an individual's creditworthiness and ability to repay the loan on time.
Today, for young adults especially, building a strong credit profile may seem like a daunting task. They may not have a long credit history or may have made mistakes in the past, such as missing payments or defaulting on loans. However, there are several ways to build a strong credit profile and increase their chances of getting approved for a big loan.
Check your credit report: Before applying for any loan, it is important to check your credit report to ensure that it is error-free. Any errors on your credit report can negatively impact your credit score. You can get a free credit report once a year from any of the four credit bureaus in India, like CIBIL or Equifax.
Use digital lending apps and NBFCs: One of the most effective ways to establish a credit history is by using digital lending apps and NBFCs for small loans and payments. These platforms offer personal loans, business loans, and credit cards to individuals who are otherwise unable to access credit from traditional banks. By using these services frequently and responsibly, young adults can establish a good credit score and build a strong credit profile.
Pay your bills on time: Late payments can severely damage your credit score. Pay all your bills on time, including credit card bills, utility bills, and loan payments. Using digital lending apps and NBFCs to pay bills can help you maintain a good credit score while also providing convenience and flexibility.
Keep your credit utilisation ratio low: Your credit utilisation ratio is the amount of credit you are using compared to your total credit limit. Keeping your credit utilisation below 30% is recommended to maintain a good credit score. Using credit cards from digital lending apps and NBFCs frequently and paying them off on time can help you maintain a low credit utilisation ratio.
Maintain a mix of credit: Having a mix of credit, such as credit cards, personal loans, and auto loans, can positively impact your credit score. Using digital lending apps and NBFCs to access a variety of credit options can help you maintain a healthy credit mix. However, it's important to use credit responsibly and make timely payments.
Monitor your credit score regularly: Keep an eye on your credit score and credit report regularly. This will help you identify any errors or discrepancies and take corrective action before applying for a big loan. Many digital lending apps and NBFCs offer credit monitoring services that can help you stay on top of your credit score and report.
In conclusion, building a strong credit profile is an essential part of personal finance management. Incorporating the above habits now can help you secure your dream buy or project in a few years’ time. It is important to start building your credit score today and not wait till the time you apply for your big loan. With a few small steps you can turn your dream into reality.
Sonali Jindal is the Co-founder and COO of RING