Most people opt to increase their credit score when they are about to apply for credit or have been denied a credit card, loan, or lease. In these cases, you want to establish your credit as soon as achievable.
Becoming financially independent is one of the most compelling aspects of growing up, but understanding how to do so can be challenging.
Good credit is essential since it will help you qualify for loans, auto insurance, rental applications, cellular services, and job opportunities.
The Credit Card Act, primarily enacted in 2010, transformed the game's rules by prohibiting credit card companies from accepting anyone under 21 without a co-signer or proof of independent income.
Fundamentally, you must show the issuer that you can repay your bills to be approved for a card. Yet, credit cards or no credit cards all boils down to being responsible.
If you cannot pay your bills in full each month, pay the minimum required payment. It will significantly boost your credit score and indicate that you are dependable and fiscally responsible. Keep your credit use modest as well. It means merely incurring the debt needed to meet the charges of your existing borrowing assets (your mortgage, car loan, etc.).
Here are a few strategies you can try to build a good credit score as a student-
A credit card boosts your credit score and evaluates your borrowing eligibility. A credit card also allows you to make transactions and withdraw money without carrying significant sums of cash. A reputable lending institution like your bank is the best place to open a new credit account.
One of the essential criteria in evaluating your credit score is your ability to pay your payments on time, including credit cards, student loans, and other debts.
When you first start using credit, you would like to ensure you never fail to make payments, as doing so—particularly repeatedly—can lower your credit score.
On the other hand, making all of your payments on time can help your credit score. Consider setting up automated payments through your bank account if you're prone to forgetting. It renders it almost impossible to skip a payment.
You, like most people, use your credit card for large expenditures that will have a long-term influence on your financial stability. But what about the odd purchase? Should you pay with cash or a credit card? The majority of the time, yes, but there are a few exceptions.
Here are six compelling reasons to use your credit card for little purchases-
You need an adult (typically a parent/guardian/custodian) to co-sign your credit card/loan application.
Similarly, you can help your friends avail yourself of credit by co-signing their applications. However, while helping people in need is a great thing to do, when it comes to money matters, try to avoid such friendships where you are required to provide a guarantee.
As a guarantor or co-signer, your credit score declines very fast should there be a situation where the primary holder defaults or elopes.
You may also want to know Everything You Need to Know About the CIBIL Score
Typically, in India, students tend to take an education loan that includes books, hostel fees, mess fees, and other expenses in addition to tuition fees. Often banks tend to provide the student with a card with a limit equivalent to the loan amount for these expenses.
That is where you need to remain cautious.
Always use your education loan for your education-related expenses only. For example, partying, pubbing, and other get-togethers are undoubtedly fun, but they should never be funded on leverage with a loan from a financial institution. Similarly, students tend to ignore the interest repayment of the education loan during the study period.
Multiple banks these days offer an interest subvention scheme whereby the student or the guardian is not required to pay anything during the study period.
Use the strategy judiciously and ensure you are fulfilling the obligation on time if you have opted for repayment of interest while studying. Always scout for part-time coaching opportunities for younger children or opt for freelancing opportunities to earn the interest component.
For some people, having access to credit makes it far too convenient to overspend and fall into debt. Here are some of the mistakes to avoid:
Even if you qualify for many credit cards, having many of them might make your financial life more challenging. Furthermore, each time you apply for a credit card, the lender will thoroughly investigate your credit history, lowering your credit score.
You can assist in keeping your credit utilization ratio low by not spending the whole credit limit on your credit card (or cards).
You should keep the account open even if you no longer use a particular credit card.
For one thing, closing the account will not stop the accrual of interest or remove the outstanding balance; the credit card company will still expect to be repaid; it will report your delinquency to credit bureaus and eventually turn your account over to a debt collection agency—all of which will harm your credit score.
So even if your debt is paid in full, experts recommend keeping it.
Here are some ways a student can create solid credit, allowing them to receive financial aid without difficulty later in life.
Most students overlook the importance of developing a solid credit history, yet getting hassle-free loans is critical later in life.