No credit card? Here's how to build a strong credit score without it

In India's rapidly evolving financial landscape, building a strong credit score has become increasingly important for accessing loans, securing better interest rates, and demonstrating financial responsibility. While credit cards are often seen as the traditional path to building credit history, many Indians either cannot qualify for cards or prefer to avoid them due to concerns about debt accumulation and high interest rates. Fortunately, several alternative methods exist for establishing and improving your credit score without relying on credit cards.

  Understanding credit scores

  In India, credit scores typically range from 300 to 900, with scores above 750 considered excellent. These scores are calculated based on various factors, including payment history, amount owed, length of credit history, types of credit used, and new credit inquiries. Lenders utilise these scores to assess an individual's ability to repay loans and manage debt responsibly.

 

  Adhil Shetty, CEO of Bankbazaar.com, explains strategies to build credit score without a credit card.

 

Building a good credit score without a credit card is possible. Firstly, taking a small personal loan or a secured loan (such as a gold loan or a fixed deposit-backed loan) and repaying it on time can positively impact your credit score. Timely repayment demonstrates financial discipline and boosts your creditworthiness.

 

An effective alternative to a traditional credit card is a secured credit card, which is issued against a fixed deposit. Banks offer these cards with a credit limit based on the deposit amount. Using a secured credit card responsibly, such as maintaining a low credit utilisation ratio (CUR) and making timely payments, helps establish a positive credit history.

 

Add-on credit cards are another useful tool. If a family member holds a primary credit card with a good repayment history, you can become an authorised user on their account. The payment history and credit utilisation on the primary card will reflect on your credit report, helping to build your credit score.

 

It is essential to remember that consistent payment of loan EMIs and managing existing bank accounts responsibly contribute to a stronger credit profile.

 

Importance of monitoring your credit score

 

Regularly checking your credit report is essential in understanding where you stand financially and identifying areas for improvement. Mistakes in your report can occur, and addressing them promptly can help maintain or improve your score. You can obtain free copies of your credit report from major bureaus like CIBIL once a year.