How to Generate a CIBIL Score for the First Time?

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How Do You Establish First Time Credit Score_WC

6 min 22 Mar 2023

Highlights:

Why do You Need to Establish Credit?
How to Establish Credit and Increase Your Credit Score?
The Best Ways to Start Building Credit From a Young Age
Common Mistakes to Avoid When You Start Building Credit
How to Increase CIBIL Score?

In today’s financial landscape, credit plays an important role in enabling transactions and access to funds. Instruments such as credit cards allow you to make purchases and manage expenses on credit. Your CIBIL score determines your creditworthiness, influencing the type of credit and terms offered by banks, lenders, or financial institutions. A higher score reflects stronger financial reliability. 

Why do You Need to Establish Credit?

Establishing credit early is essential to achieve future financial milestones. A strong credit score is key to securing loans for a home, car, or other major purchases. Building a credit history and using the credit wisely at a young age can simplify your financial transactions in the future. Since credit history improves over time, starting early offers significant advantages.

Also Read: Different Types of Credit Scoring Models You Must Know

What are the Ways to Start Building a Strong CIBIL Score?

It is best to start building credit scores early in your life. Understanding how credit score works, checking your CIBIL score regularly, and working towards increasing your credit score while you are young help you establish a strong foundation for future financial commitments, such as a housing loan.

Here are some ways in which you can start building a strong credit profile:

1. Apply for a Credit Card or Loan

The first step in establishing your credit history is to apply for a credit product. For instance, a secured credit card, backed by a fixed deposit, can be ideal for beginners. This way you can demonstrate responsible borrowing behaviour, which is essential for building a credit score.

2. Make Timely Repayments

Your payment history is one of the most important factors affecting your credit score. Ensure that you pay your credit card bills or loan EMIs before the due date. Setting up reminders or automating payments can help you stay consistent in repaying the credit.

3. Keep Credit Utilisation Low

Credit utilisation refers to the percentage of your available credit that you use. Aim to keep this below 30% as it indicates that you are not overly dependent on credit.

Also Read: Easy Ways to Maintain a Good Business Credit Score

The Best Ways to Start Building Credit From a Young Age

It is best to start building credit scores early in your life. Understanding how credit score works, checking your CIBIL score regularly and working towards increasing your credit score while you are young helps you transition to adulthood successfully. The credit history reflected on your CIBIL report can help you get your first Housing Loan and your first vehicle loan. A record of paying back on time is something that will reward you financially, in addition to having a card at your disposal. As a financially independent individual, you can use credit for making purchases and paying bills. This includes additional benefits such as getting a better rate for vehicle protection. A better credit score will play a major role in whether your loan applications are endorsed, in the future. It will likewise decide how high your loan fees will be and whether you are approached to pay extra security.

There are multiple ways of beginning to lay out a good credit track while you are still young:

Having your family members add you as a joint credit account holder is a basic starting point toward building a positive record as a purchaser. They can help you with minding the month-to-month declarations. Learning about the entire credit process, from making a charge to dealing with the bill, will help you with regulating credit well. This will help you when you deal with credit independently. 
If you don't have a co-signer, consider applying for a credit card alone. Use a portion of your credit to make purchases. If you use your credit carefully and pay back on time, your credit limit will likely increase.
You can add your one-time utility bill, cell phone bill and Netflix or other web-based feature instalments to your credit card. This can be particularly helpful for people who have scores under 680 or individuals who have what is thought of as a "slender document" of less than five credit accounts on their credit report.
Shop within your means using a credit card. By being financially prudent and making good choices, you will end up with a good credit track.

Also Read: Easy Ways to Maintain a Good Business Credit Score

Common Mistakes to Avoid When You Start Building Credit

When you are building your credit profile, avoid these mistake:

1. Missing Payments

Failing to pay credit card bills or EMIs on time can reduce your credit score. Missed payments get registered on your credit report and can affect your score negatively.

2. Overusing Credit

Using your credit cards to the maximum capacity or maintaining a high credit utilisation ratio can suggest financial strain.

3. Applying for Multiple Credit Products Simultaneously

Applying for several credit cards or loans within a short period of time can lead to multiple hard inquiries on your credit report causing a decrease in your credit score.

Final Words

Building a credit profile early is important for achieving financial milestones in future. A good credit score can help you secure favourable terms on loans or credit cards. Start by applying for a credit card, such as a secured credit card, making timely repayments, and maintaining low credit utilisation.

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Frequently Asked Questions

While the exact time for building a CIBIL score may vary, it usually takes around 6 months to a year in case you do not have a credit history.

You can visit CIBIL’s official website to check your CIBIL score.

Ideally, a CIBIL score of 750 or above is considered good when applying for a Home Loan.

No, checking your own CIBIL score frequently, known as a soft inquiry, does not affect your score. However, multiple hard inquiries conducted by lenders when assessing your loan applications can impact your credit score.

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