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It is not easy to build and maintain a good credit score. If your credit score becomes bad, improving it takes a lot of effort and time. Although using a credit card responsibly is a good way to improve your credit score, it is not the only way. There are multiple other ways to improve your credit score. Read on to find out about 5 ways to build a strong credit score without a credit card. Before that let us see what is a credit score and a credit report.
Credit Score & Credit Report
Credit Score:
The credit score is a 3 digit number that summarizes your credit history. It represents your creditworthiness. The credit score is based on your credit history and payment history. Lenders consider your past repayment history as a clear indicator of your repayment capacity. Credit score plays a very important role in getting loan and credit card approvals. This is especially true for unsecured loans and credit cards since they don’t have any collateral or assets to back them up.
Credit Report:
Credit bureaus keep track of the credit actions of their clients in their credit reports and generate a number between 300 and 900, which is the credit score. So, what goes into your credit report is very important. Any missed out credit actions that could boost your credit score and any errors that could cause a dip should be rectified immediately.
Here are 5 Key Ways to Build A Strong Credit Score Without A Credit Card
#1 Take Out a Small Loan at a Bank or an NBFC.
If you have a good relationship with a bank or NBFC, then you can borrow a loan from the bank or NBFC. Borrow it according to your repayment capacity. Repaying this small loan will help in building your credit score but ensure that you make timely repayments. If you default on your payments, it will have a negative impact on your credit score.
#2 Ask Someone To Add You As An Authorized User
If you know someone, you can request them to add you as an authorized user. In this way, you can benefit from the account owner’s timely repayment of loans EMIs, credit card bills etc. His good credit score will also have an impact on yours. But, it could also be the other way round. If he defaults on payments, the negative impact on his credit score could have a negative impact on yours as well.
#3 Apply For A Secured Credit Card
You can apply for a secured credit card. These credit cards are secured against a fixed deposit, so you can get them approved with higher ease compared to unsecured ones. Also, the credit limit that you get will be equal to the value of the deposit. For instance, if your fixed deposit is Rs. 60,000, then you will get a credit card with a credit limit of Rs. 60,000. Pay your credit card bills on time with the secured credit card. In this way, you can build your credit score. Secured credit cards reflect your creditworthiness in the best way. You can get automatically upgraded to an unsecured credit card or request for one if your credit score is good.
#4 Reporting rental payments
Rent has a great impact on your credit history. So, paying your rent on time is a good way to build your credit score. However, without informing the landlord or your property manager, you cannot report your rental payments to credit rating agencies and credit bureaus. Rent payments cannot be seen on your credit report unless they are submitted to a credit bureau. Credit rating agencies or credit bureaus cannot access information about your rental payments unless you disclose it to them.
#5 Take a Peer-to-peer lending Loan
Peer to peer lending also called as P2P lending is an alternative financing method which allows individuals to take loans from other individuals through online lending platforms. If you're not able to get a loan from your bank or NBFC, you can always take one from your bank or NBFC.
These loans offer higher interest rates for borrowers with short credit histories or a low credit score. But, they can be used to build your credit score since these peer-to-peer lending platforms report to the credit bureaus. Just ensure that you're not borrowing more money than you need or wasting it on unnecessary buys.
Conclusion
If you follow one of the methods mentioned above, you can build a good credit score. It is essential to always make your payments on time as just a few defaults on payments will cause a negative impact on your credit score. So, after building your credit score and taking it to a point of excellence, if you have a series of missed payments, it is going to be a waste of the effort taken in building your score.
FAQS 5 Ways To Build A Strong Credit Score Without Credit Card
1:What are ways to improve your credit score?
Ways to improve your credit score are, checking your credit report regularly, paying bills on time especially mortgage or rent payments, keeping balances low on credit cards, paying off debt rather than rotating it, paying more than the minimum amount due, applying for credit only when required, and starting off from paying missed payments first.
2:What is the most important thing to build your credit?
Paying your loan EMIs and credit card bills on time is the most important thing to build your credit. Credit card and loan lenders report your payment behaviour to the credit bureaus every 30 days. So, ensuring timely payments will help you take a big stride towards building your credit score.
3:How long will it take to recover from poor credit?
You cannot give a specified timeline to recover from poor credit. It could take a few months or several years of financial discipline to rebuild your credit. It depends on the seriousness of the issues that affected your credit history.
4:Having how many credit cards is too many?
It is generally suggested to have two or three credit card accounts at a time in addition to other types of credit. Keep in mind that the total available credit and your debt to credit ratio can affect your credit score. If you have more than 3 credit cards, it may be hard to keep track of monthly payments.