A credit score is important when you have to prove your credit worthiness to a bank to get a loan. But it is not just your credit card’s job to build up your credit score. There are other credit or loan facilities, and they can equally help you build your credit score without a credit card.
A good credit score will be helpful when you are looking for a loan in the future.
In this article, we will discuss some of the most common ways that can help you build your credit score without involving your credit card.
Personal loan
A personal loan is the most sought-after credit facility in the market to meet a sudden financial requirement. Taking a personal loan and making timely EMI payments will improve your credit score. Eventually, when you pay off the loan and interest completely, your credit score will grow significantly.
There is one thing to remember: the personal loan interest rate will be based on your current credit score.
Any existing loan
If you have already applied for a loan, make sure to pay the monthly EMIs to the lending institution on time. Always try to maintain a debt-to-income ratio as low as 30%. A lower debt-to-income ratio is essential to maintaining a good credit score. Your EMI payments should be a part of the list of your monthly expenses; in this way, you will make it a habit not to miss an EMI payment date. Late or no EMI payments impacts your credit score negatively.
Car loan
Another very common loan category is a car loan. If you are planning to get a new car, it is a good idea to get a car loan and then repay the lending institution in a disciplined manner. This will help you build your credit score.
Student loan
If necessary, you could also consider taking out a student loan. A student loan is not affected by credit checks but is dependent on the co-borrowers documents. If you timely repay the loan and the interest amount, it will help you build a good credit score. Student loans also have a long tenure, which reflects positively on your credit history.
Apply for an FD backed credit card
If you are new to credit scores and are looking to get a credit card, it might be challenging. But don’t worry, as now there is a solution to that problem. We are talking about FD backed credit cards. These are easy to get and offer multiple benefits.
An FD backed credit card is a card issued against an FD account. It is a secured credit card, as it is backed by a security deposit in the form of the FD account against which the card is issued. The credit limit is 90% of the amount in your FD account. Also, when you use a credit card to make any purchase and pay the credit card bills on time, you build your credit score automatically.
So getting an FD backed credit card is like enjoying double benefits: To begin, you obtain a credit card to fulfill your desires. Plus, you earn a higher interest rate than savings on the money parked in your FD account.
One of the best lifetime free FD backed credit card is offered by Kotak811. You get a credit card without any joining or annual fees by opening an FD of just Rs.5000. The card also offers cashback and reward points on purchases.
Improving your credit score is a step-by-step process, and there are multiple options when it comes to improving your score. Just take up any process and remember to be consistent when you are in repayment mode. Also, avoid too much exposure to credit at once, as it might become hard to pay back massive debt.
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This Article is for information purposes only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. Bank makes no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Newsletter. The information contained in this Article is sourced from empanelled external experts for the benefit of the customers and it does not constitute legal advice from Kotak. Kotak, its directors, employees, and contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein.
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