To score high, borrow some

Many people, especially women eschew borrowings and play it safe by never taking a loan. But building up some kind of credit history can help over the long term. Here is why you should consciously build up a credit history.

Why you need it It’s hard to say for certain that you will never need a loan. You could, at some point, require quick finance, prompting you to take a personal loan.

You may also go in for a joint home loan. A good credit score will go a long way in helping you secure financing on beneficial terms.

Bad credit history can put up hurdles to your goal of buying a house, financing your education and in some cases, even getting a job. Be wary of debt, but don’t eschew it altogether.

From your first credit card to your latest car loan, all that you do that involves borrowing (credit), becomes part of your credit history. And to have a credit history, you simply have to borrow.

What if you aren’t financially independent? Even so, it’s possible for you to build up a score.

To do this, take your finances into your own hands. For starters, have a bank account in your name.

Next, have your own credit card instead of an add-on via your husband’s or your parents’ cards. This way, the card is in your name, as will be the monthly statements. Service the dues through your bank account.

Also, use the account to meet mobile bills and other payments. All this will enable you to establish a track record of diligently servicing your loans and other credit liabilities.

Borrow wisely Charge only what you can afford to your credit card. Always borrow within your means — don’t cave into the marketing efforts of the credit-card company, bank, or store!

You’re the best judge of what monthly payment you can afford; so, do a budgeting exercise before you go shopping for a loan or a fancy dress. More importantly, make sure your bill doesn’t exceed that amount.

Besides keeping a firm grip on your spending fancies, refrain from exhausting the available limit on your credit card, or even coming close to it.

Maxing out your card is irresponsible credit behaviour, more so if you don’t have the capacity to pay the whole balance off within a month. Lenders know that borrowers who max out their cards often have difficulty repaying. Try not to use up more than 50 per cent of your credit limit and maintain your liability below 30 per cent of your credit card limit.

Carry balance the right way While paying off your balance in full every month has its advantages — you won’t have to pay interest on your bill — it isn’t unreasonable to repay your dues over a few months. But note that additional purchases will increase your liability.

But do pay more than the minimum each month to finish off your balance as quickly as possible. Avoid making late payments, which will damage your credit score. Your records will thus demonstrate that you know how to only borrow what you can pay back.

Let accounts age The longer you’ve had credit, the better it is for your credit score. Leave your oldest accounts open since they help increase your credit age and build good credit.

An account will remain on your credit history for several years after you’ve closed it, but after this period, credit bureaus will drop it from your credit report, which could impact your credit score.

Finally, keep in mind that not all of your monthly payments are listed on your credit report; they won’t affect your credit as long as you’re paying on time.

But any bill can potentially wind up on your credit report if you become delinquent and the account is sent to a collection agency.

A serious delinquency like a debt collection is hard to overcome. So don’t be afraid to take on debt.

As long as you do this within your means, you will be able to build up a good credit score.

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