Credit Score: What to do when your credit profile does not exist? | Mint

If you never held a credit card and never took a loan then the chances are that your credit profile does not exist. This means the bank may refuse to give you a credit card or a fresh loan.

This is a common problem among young loan seekers who have recently started earning and do not have a credit profile to speak of.

So, what is one supposed to do in such a case? One of the important steps which one can take is to build the credit profile step by step.

Few useful steps which one can take:

I. Get a secured credit card: Procuring a secured credit card is a quick way to build your credit profile. Those who are not aware – a secured credit card is a card issued against the collateral of a fixed deposit (FD) of equal or more amount.

For instance, if someone wants a credit card of ₹2 lakh, the bank will issue it against an FD of ₹2 lakh. When you use this card over a period of time, your profile starts building. And later you may become entitled to a credit card without any collateral against it.

II. Clear your bills and card payments on time: You should not refrain from delaying your credit card payments. Try to clear the entire bill without fail and do not get tempted to pay the minimum due.

III. Maintain a healthy CUR (credit utilisation ratio): During the time you are using a credit card, make sure that your credit utilisation ratio is below 30 percent. This is considered an optimum ratio and seen as good for a healthy credit score.

IV. Consider raising pre-approved loan: If you have an offer for a pre-approved loan, you may consider taking out the small loan which is easy to repay. Since this is pre-approved, you don’t need to undergo the hassle of arranging multiple documents to be able to procure the loan.

And as you repay the loan diligently and clear it on time, your credit score will improve — thus enabling you to raise a loan of higher amount in future.

(Note: Raising a loan comes with its own risks. So, due caution is advised)