If you are a student or have completed your studies and got your first job, you might be raring to have a credit card considering all the benefits and conveniences offered by the card. It would also help you manage your finances efficiently.
But as puzzling as it may be, banks demand a credit history to offer you a credit card. The first-time borrowers who are new to credit will have ‘NH’ in their credit report which means ‘No History’. With that status, getting a credit card can become slightly difficult.
It would be ironical or a chicken and egg kind of a situation where you can't get a credit card without a credit history and on the other hand, you can't open your innings on the credit history without getting a credit product.
Why Do Banks Check Credit History?
When you apply for a job, the employer does not guarantee you the job just by looking at you. There is a multi-level of test in which the employer assesses your qualification, experience, and skill to see if you suit the position that you have applied for.
The credit evaluation system works in a similar way. Banks need to evaluate your creditworthiness and reliability. Your past credit history is the only source which banks can use to evaluate your credit behavior and decide whether to offer you the credit product or not.
Your credit score is issued by the credit bureaus based on the reporting done by lenders from whom you borrow. All transactions right from your loan or credit card application to its approval, your repayments/defaults, if any, and till the closure of the loan, everything is reported.
Based on these, an individual is assigned a score between 300-900 with higher score indicating higher level of creditworthiness. Also, building a credit score takes time; it is not an overnight exercise that can see your scores come up.
Even for a new entrant to the credit system, it will take some time of consistent and responsible behavior to see your credit score move up to a decent number.
All that seems to be fair, but how could one start off their credit history. We bring to you options available for getting a credit card if you do not have a credit history.
Getting A Credit Card With No Credit History
While credit score evaluation system can favor the individuals who have already taken the credit, the first-time borrowers might find it difficult to access credit. To mitigate this problem, the lenders have adopted different approaches to evaluate the creditworthiness of a borrower.
Get A Credit Card On The Basis Of Your Salary Statement
If you are working in a public or private company for more than six months, it would be easy for you to apply for a credit card with the bank where your salary is credited. You will need to provide a Letter of Employment from your company HR and your salary statement.
You could also apply for a credit card at other banks, however applying for the card at the bank where you hold a salary account will make it easier for the bank to verify your documents and take the decision of approval or rejection of the card quickly.
Get A Credit Card Against Fixed Deposit
While it could be easy for salaried employees to get a credit card with no credit history, self-employed individuals will have to explore other ways to get one. Most banks now offer secured credit cards against fixed deposits. However, you may have to maintain a minimum deposit as long as the lender demands you to. The credit limit on your card may be set to a percentage of the fixed deposit held by you.
For Ex; If you hold a Fixed Deposit of Rs 40000, then you might get a credit card with an upper limit of Rs 30000, which is 75% of your FD amount. Once, you have established a good track record of credit behavior for a year or so, the bank might waive off or lower the minimum fixed deposit range.
The best thing about getting a card against your fixed deposit is that your FD will continue to gain interest and you can spend on your credit card. However, make sure to make your pay credit cards payments on time to ensure you build your credit score.
Getting a Prepaid Credit Card
Prepaid credit card works on the similar premise like a fixed deposit credit card. To avail a prepaid credit card, you can prepay a certain amount to the bank, and they issue a card with the credit limit set to the amount prepaid by you.
Being new to the workforce, spending carefully and prompt repayment is crucial so that you do not get into the spiral of credit card debt. With a prepaid credit card, it will be easy to restrict your expenses and may teach you to use a real credit card properly when you are eligible for one.
Moving away from the traditional scoring system, banks are getting into using alternate sources of data and credit behaviour indicators to base their credit decisions on. This has opened a window of opportunities to countless first-time borrowers.
Many in India are averse to taking a loan or credit card as it considered a debt burden. People have the notion that it would bring financial trouble. Gradually this misconception is disappearing with more and more people turning to credit cards to effectively manage their finance.
Getting a credit card at an early stage in life can teach you many things about managing your own finance.