If you have never ever availed any loans or possessed any credit cards in India, you will not have your records with any of the credit information companies – therefore no credit history. As such, when you will try to check your credit score from any of the four credit bureaus, you will get a score of -1 or no score (also called No Hit or NH cases).
Is -1 or NH bad? If one doesn’t have any credit history, a bank or a NBFC lacks information from one credible source so it becomes difficult for them to take a decision on your loan application. The lender, in absence of a credit score, will use alternative mechanisms to assess your application and therefore may take longer to decide or may even reject an application. Having a -1 or NH score isn’t bad by itself, it is a genuine condition for a youngster who is starting with the first job or a housewife who is looking to be a co-applicant for a housing loan with her husband.
For a person with no credit history in India, what’s the best way to get started?
If you would like to build your own credit history and get yourself a credit score, you will have to begin by taking a loan or a credit card and use it effectively over some time. Here are a few simple ways by which you can build a credit history:
1. Apply for a Credit Card with your Existing Bank: You can apply for a credit card with the bank with which you have an existing relationship like your salary account. As the banks are generally inclined to offer additional facilities to its existing customers, the absence of a credit history may not bother much to them. Go for the most basic credit card on offer to begin with. However, you may get a lower credit limit in such cases, but nevertheless, your credit card is there and so is your credit history. Further, once you have a credit card, make sure to pay off the credit card dues well in time as regular repayments will translate into a better score for you. Do not spend too much, limit your utilization to 30–40% of the card limit.
2. Apply for a Secured Credit Card: if the first option doesn’t work out for you, you can deposit a small amount say 30K into a Bank FD, and apply for a “secured” credit card against the deposit. The bank will assign you a credit limit of up to 80% of the deposit amount. This is generally a good starting point for even self-employed and professionals.
3. Apply for a Small Ticket White Goods Loan: You may also purchase your next smartphone, TV or laptop on EMI by applying for a small consumer durable loan/ EMI loan. The financiers are available on most large format electronics retail stores as well as on the online e-commerce websites. Consumer Durable Financiers are more comfortable approving loans for customers with no credit history, and the approvals are also almost instant. The good news is that these loans are usually zero cost EMI loans.
4. Apply for a Secured Personal Loan: Most of the banks can offer you a personal loan against the security of your existing term deposits (loan against deposits). Since the term deposit is generally enough to cover the personal loan amount along with interest for a reasonable period, banks may not check your credit report and sanction you a personal loan. Usually, such personal loans may be lighter on your pockets too, as such loans typically carry an interest rate of your FD rate plus 1-2% and FD rates are presented in the range of 6-8%. So, the effective interest rate can be 7-10%.
As they say, ‘Rome was not built in a day, neither will your credit history be.’ It may take six months or even a year depending on how well and often you use and handle credit. However, ensure regular repayments of your loans and credit cards, so that you have a good credit score, reflecting good credit habits. Further, once you have a credit history and a credit score, make sure that you manage your loans and credit cards smartly.