October 03, 2022
Hear 5 smart ways millennials can boost their credit score with holiday shopping
The Navaratri festival has already started and India’s biggest festival, Diwali, is fast approaching. The Indian market is ready, with several festive season offers to entice consumers. Since many online and brick-and-mortar merchants offer lucrative deals on purchases made with credit cards and different credit facilities, this is a great opportunity for millennials looking to build up a credit history and improve their credit ratings. This article lists 5 ways millennials should build their credit score with festive shopping this festive season.
Every lender i.e. Banks and Non-Banking Financial Companies (NBFCs) follows certain eligibility criteria for the loan application approval process, based on which your loan application is approved or rejected, and the loan amount you are eligible for is determined. Among many factors, your credit history and credit score are the most crucial factors determining your eligibility for a loan.
Credit history is a record of your past loan repayments. Credit bureaus collect data about your past and current loan repayments from banks, NBFCs, credit card companies, government, collection agencies, etc. and prepare a detailed report called a credit report. This report contains your credit history and is based on who a credit score is assigned to you, i.e. the borrower. The credit score ranges from 300 to 900 and represents your credit repayment capacity. The higher the credit score and the stronger credit history, the more banks and NBFCs will be interested in extending credit facilities to you. That said, a lower credit score reduces your chances of getting a loan.
If you are early in your earning years and have never taken a type of credit before, it is possible that when you apply for your first loan, the lender may reject your loan due to a lack of credit history. credit and lack of credit score. However, you can overcome it by making a small difference in your purchases and payments for living expenses. Here are 5 smart ways to build your credit history and improve your credit score with holiday shopping:
1. Use your credit card for purchases:
Most merchants offer different credit card offers during festivals. These offers not only allow you to earn reward points and cash back, but using the credit facility on credit cards and timely repayment can also help improve your credit score. Additionally, using an old credit card helps to age your credit, which is another major factor that has a big impact on your credit score. So, if you are planning to make a big purchase like an electronic gadget, furniture, etc., you can consider buying it by credit card. Paying off your credit card bills in a timely manner helps boost your credit score. Using your credit card to improve your credit history is the most affordable way because if you repay dues on time, you won’t have to pay any additional charges, such as interest or processing fees.
2. Use an EMI card/installation:
Making big purchases no longer requires you to save for months. Almost all major online and offline merchants offer EMI facilities at no cost or interest to consumers who cannot afford to pay in full. The facility is offered through a reconciliation between a merchant and a financial institution. Although no-cost EMI setup saves you interest, lenders may charge higher processing fees or other fees. Therefore, it is important to carefully compare and read the terms and conditions to avoid future disappointment. If no such offer is available at your preferred merchant, you can convert your credit card purchase to EMI. However, using the credit card EMI facility without a no-fee EMI offer may result in a high interest rate.
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3. Take a personal loan:
If you have larger expenses to get off the ground this festive season but lack sufficient savings, you may want to consider taking out a personal loan to meet those expenses. Personal loans are generally available between Rs 30,000 and Rs 5,00,000. Since there is no restriction on the end use of the personal loan amount, you can use this amount for legitimate purposes, such as buying a vehicle, expensive gadgets, renovating a house, organizing a party, etc. Personal loan interest rates are very high compared to the interest rates of other secured loans like car and home loans. Banks and NBFCs usually offer a discount on interest rates and/or processing fees during festivals like Dussehra and Diwali. If you are considering taking out a personal loan, it is advisable to compare different lenders in terms of interest rates, loan amount offered, customer service, eligibility criteria, application process, processing fees, prepayment charges, etc., and choosing the right lender. Opting for a personal loan and paying it back regularly will help improve your credit score.
4. Maintain the credit utilization ratio:
While many borrowers ignore this factor, a credit utilization ratio is a crucial factor that determines your credit score. This is a percentage of the credit you have used against your available credit limit. So you can calculate your credit utilization rate by dividing your entire debt balance by your total available credit limit. The more you use the credit facility by swiping your credit cards and opting for loans; the lower your credit utilization rate will be. Therefore, it is advisable to use up to 30% of your credit limit. If you are a frequent credit card user and use the EMI feature on your credit card, it makes sense to use multiple credit cards or increase the credit limit on your existing card(s) (s) in order to maintain the credit utilization rate.
5. Make timely refunds:
Timely repayments of your existing and new credit card bills and loan payments are imperative to ensure that your credit score maintains or improves over time. Whether you opt for a new credit card or a personal loan to build your credit history, you need to make sure you have a repayment plan so that your monthly repayments aren’t delayed or bounced. To ensure that you pay your dues before the due date, it is advisable to use the automatic payment facility or the debit mandate. If you’re not planning on making big purchases this holiday season and don’t want to spend too much, you can always improve your credit score by upgrading to a free credit card for life with no fees. membership or annual fees, using it for your day-to-day expenses and repaying the amounts due on time.
While having credit cards and loans is essential to improving your credit score and building a strong credit history, you should not apply for multiple credit cards and loans simultaneously. When you apply for a new loan or credit card, the lender inquires about your credit score with the credit bureaus, and multiple credit score inquiries over a short period of time can affect your credit score. Moreover, when lenders reject your applications due to bad credit ratings, it can also hurt your credit rating. Apart from this, it is also important to have the right mix of secured and unsecured loans. Having a maximum of unsecured loans can also have a negative impact on your score. It doesn’t make sense to take out multiple loans and borrow more than you can comfortably repay, as this can lead to financial stress and over-indebtedness in the future.
A credit score plays a vital role in getting your loan or credit card application approved. Although the tips given above will help you maintain and/or improve your credit score, you cannot expect them to completely change your credit score overnight. However, if you follow these tips consistently and are patient, you will eventually see a positive result in your credit score.