To lay the groundwork for future financial goals, students need to build a robust credit score. This helps them maintain a clean credit profile and boosts their repayment capacity.
A clean credit profile and strong credit score, anything above 750, helps immensely when applying for loans and new credit cards, renting apartments or even securing reputable jobs.
A good credit score reflects responsible money management and planning. It also opens the door to better financial products, lower interest rates and higher credit limits on future loan and credit card applications.
Here, we discuss five practical strategies that can help students build and establish a healthy credit score from the very early years of their lives.
Begin with a secure credit card
Students generally do not have their finances in order, and most don’t have fixed income streams. That is why secured credit cards are ideal tools for students with no prior credit experience or history.
These cards are generally issued against a fixed deposit which becomes your credit limit. By making small regular purchases and clearing the full dues every month, students can build a positive repayment history and a foundational track record. It is also important to select a card that reports to all major credit bureaus to ensure that your credit profile and credit activity are recorded accurately and contribute to your score.
Focus on making timely payments
Your payment history is one of the most important factors in calculating your credit score. It accounts for about 35 per cent of the total credit score. That is why it is crucial for students to aim to pay all dues on time, including credit card bills, home loans, education loan EMIs, mobile phone bills and utility payments.
To ensure it becomes even more seamless, you should consider setting up auto-debit mandates, reminders or even using budgeting tools and applications that help avoid late payments. Remember, even a single missed payment can harm your credit score immensely and take several months to recover.
Purposefully keep your credit utilisation low
Credit utilisation basically refers to how much of your available credit you are using. Experts generally suggest keeping this percentage below 30. This simple exercise helps immensely in maintaining a healthy credit score.
For example: If your credit card limit is ₹20,000, then try to to spend no more than ₹6,000 in a billing cycle. This is important because high utilisation may suggest financial stress, i.e., higher dependence on credit for survival even if you repay on time. Now, students can also request a credit limit increase after a few months of responsible usage, which helps in keeping the utilisation ratio low. This simple practice can also help you secure premium credit cards in the future.
Make the most of education loans
Education loans are instruments that can do more than just assist you with your educational needs. They can also help you in building your credit profile and boosting your credit scores.
Most of the educational loans come with a stipulated moratorium period. This means repayment tenure begins after your course is completed. Now, once the repayment period starts, timely EMI payments contribute constructively to your financial health and credit history. That is why you should choose lenders who systematically report loan repayment data to credit bureaus. Furthermore, even try to repay interest during the moratorium period itself if financially possible.
Check, follow up and rectify credit reports
If you are a student with limited financial capacity and nearly no activity, even in such cases you should regularly check your credit reports. Errors such as incorrect personal information, names, wrong account numbers and status or unauthorised credit inquiries can negatively impact your credit score.
You can obtain one free credit report every year from any of the four major credit rating agencies: CIBIL, CRIF High Mark, Experian and Equifax. You should also always report any inaccuracies promptly to ensure your credit profile reflects your honest creditworthiness.
Bonus tip: Avoid applying for several loans at a time
Every time you put in an application for a new personal loan or a credit card, generally a hard inquiry is recorded on your credit report. Now too many hard inquiries in a short period of time can significantly hamper your credit score and your overall credit profile. That is why you should be careful while applying for new loans and credit cards. Apply for them only when you have no other options left and are pretty confident of approvals.
By following these simple strategies, you can build a solid credit foundation even when you are a student. This foundation will go a long way in helping you secure personal loans on reasonable terms, lower interest rates and credit cards on fair conditions.
Disclaimer: Mint has a tie-up with fintechs for providing credit, you will need to share your information if you apply. These tie-ups do not influence our editorial content. This article only intends to educate and spread awareness about credit needs like loans, credit cards and credit score. Mint does not promote or encourage taking credit as it comes with a set of risks such as high interest rates, hidden charges, etc. We advise investors to discuss with certified experts before taking any credit.
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