Here’s how young people can build a good credit score early in life

Young people can build their credit history in a number of ways. One of the best is to get a credit card at the age of 18.

Understanding the importance of money and credit needs to start early so that young people can build healthy credit habits. This is essential because certain credit history is a prerequisite for obtaining a credit score.

In turn, this makes it easier for young people to transition to adulthood as they can access loans, insurance and other financial products at relatively reasonable rates compared to those who do not. credit history.

Some benchmarks

Young people can build their credit history in a number of ways. One of the best is to get a credit card at the age of 18. To acquire a solo credit card, However, in India it is still very difficult for a student to get a credit card from a bank. The best bet for a student is to apply for a credit card or line of credit product with a digital lender, who might be more willing to approve them.

Minors may also have credit cards if a parent authorizes an additional card in their name. While these add-on cards share almost all of the functionality of the primary card, the spending limit can be capped at a lower amount if needed. An additional card can help teens understand the importance of calibrated spending.

Teaching young people how to maintain a great credit history is also essential. This can be done by spending within your means, always paying credit card bills on time, and avoiding multiple credit cards or bank accounts which are then difficult to manage.

Another crucial element is teaching teens the difference between credit and debit cards. Each time a parent swipes a card, the children closely observe the process. These years are a good time to teach them that while a debit card is like cash, a credit card is borrowed money. As a result, years before young people start using their debit or credit cards, they know the difference between the two.

These early lessons will help them deal with the more complex issues of borrowing and using credit cards soundly, all of which help build their credit history. In today’s age of consumerism, good credit scores have many benefits for young people. For example, these will be essential to verify that their credit card applications and educational, personal, consumer or housing loans are approved easily, on more favorable terms.

In the following years, when they apply for expensive loans from traditional lenders or fintech players, they will be sure to get approvals on better terms, depending on the length and status of their track record. credit.

Other key elements

During this time, it is important that young people do not harbor any misconceptions about credit which could turn out to be costly in monetary and credit score terms. Therefore, they should realize that even a single late payment on card bills or loan repayments can negatively impact credit scores. To avoid any missed payments, one could opt for automatic payments or ECS direct debits. These are particularly beneficial for monthly or periodic payments. Of course, these options only work if there is enough funds in their bank account to pay the bills on time.

Young people should also know that defaults on other bills – phones, utilities, medical care, and the like – can hurt their credit scores are reported to the credit bureaus. Accordingly, it is imperative to maintain budgetary discipline by paying all bills on time. Likewise, if they close or interrupt a service or utility, any pending balance should always be cleared. Otherwise, the interrupted service provider could send this information to the credit bureau.

Likewise, young people should either cap spending limits or make sure they restrict the use of their credit cards to the extent that they can clear the balance each month. Carrying over any balance incurs high interest charges. In addition, a high unpaid balance can affect the credit rating. One simple trick is to use their credit card like a debit card, only making purchases that they can comfortably pay for. It is better to keep the utilization rate at 30% or less, so that it is easier to clear invoices on time every month.

The other aspect is to avoid making multiple back-to-back loan applications. Whenever a person applies for a new loan or a new credit card, the lender submits a credit assessment request to CIBIL, called a “firm investigation”. Lots of thorough investigations in a short period of time make lenders reluctant to approve a loan or card because the applicant appears to be greedy for credit.

Therefore, the young person should only apply for a credit card or loan from one lender or bank at a time, where the eligibility criteria are easier to meet. Lifelong fiscal discipline leading to a strong credit rating will then pay dividends in the short and long term.

By Gaurav Jalan, CEO and Founder – mPokket

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