Credit history is a record of how a person has used credit in the past. It includes information such as the number and type of credit accounts, the amount of debt, the payment history, and any defaults or delinquencies. Credit history is used by lenders to assess the creditworthiness of a borrower, that is, the ability and willingness to repay a loan.
Having a good credit history is important for borrowers because it can help them get access to credit at favourable terms. A good credit history shows that the borrower has been responsible with credit and can be trusted to repay the loan on time. A good credit history can also help the borrower get offers for loans at low interest rates, borrow a higher amount, and be eligible for pre-approved offers that require minimal documentation and faster disbursal.
How to build a good credit history?
Building a good credit history is a gradual process that requires consistent and prudent credit behaviour. Here are some tips to build a good credit history:
- Apply for a credit card from the bank where you have an account or salary deposit. This can increase your chances of getting approved as the bank already has a relationship with you. Alternatively, you can apply for a secured credit card that is backed by a fixed deposit. This way, you can get a credit card even if you do not have a credit history.
- Use your credit card regularly but within your budget. Do not spend more than you can afford to repay. Ideally, you should keep your credit utilisation ratio (the percentage of your available credit limit that you use) below 30%. This shows that you are not over-dependent on credit and can manage it well.
- Pay your credit card bills and other loan EMIs on time and in full. Late or partial payments can negatively impact your credit history and lower your credit score. Set up reminders or auto-debit facility to ensure timely payments.
- Do not apply for too many loans or credit cards in a short span of time. This can create multiple inquiries on your credit profile and indicate that you are credit-hungry. Too many inquiries can also lower your credit score and reduce your chances of getting approved.
- Monitor your credit report regularly and check for any errors or discrepancies. If you find any mistake, report it to the concerned lender and the credit bureau for rectification. A correct and updated credit report can reflect your true credit behaviour and improve your credit score.
How to check your credit report?
You can check your credit report from any of the four credit bureaus in India: TransUnion CIBIL, Equifax, Experian, and CRIF High Mark. You are entitled to get one free credit report from each bureau every year. You can also access your credit report from online platforms like Paisabazaar, BankBazaar, Andromeda, etc.
Your credit report contains various sections such as personal information, contact information, account information, enquiry information, etc. You should go through each section carefully and verify the accuracy of the data. You should also check your credit score, which is a three-digit number that summarises your credit history. A higher credit score indicates a better credit history and vice versa.
