Building credit is an essential financial exercise as it helps you avail loans for various purposes. A good credit history boosts your credit score and enhances your credit worthiness. It helps avail loans at attractive interest rates and gives you the power to negotiate with your lender.
However, the question is, how can you build credit? Read on to know the various aspects of this financial exercise and the way to go about it.
Building Credit through Personal Loans
Personal Loans, an unsecured mode of finance, is a great way to build credit and improve credit score. These loans available at a competitive interest rate not only provide you instant funds to fulfil your short and long-term objectives but also creates a record that can be made positive, by paying off the loan EMI on time.
Note that while Credit score plays a critical role in the loan application process, lack of credit history can be a dampener as your lender will not know about your money management skills. There are cases where loan applications have been rejected because of a lack of credit history. Here’s how Personal Loans help you to build credit, improve credit score, and boost creditworthiness.
1. Availing Personal Loans from NBFCs
Today, availing a Personal Loan is a hassle-free affair. While traditional financial institutions like banks provide these loans, for credit building non-banking financial companies (NBFCs) are your best bet. With relaxed lending norms coupled with an easy application process and quick disbursal of funds, NBFCs have set new trends in lending.
2. Collateral-free Loans
Personal Loans being unsecured don’t require you to put your personal assets on the line as collateral. Also, your lender won’t question you on how you intend to use the funds. Being collateral-free, the application process is fast and quick. You can use this collateral-free loan to address your financial goals such as home improvement, going on a vacation, higher education, and wedding, among others.
3. Low EMIs for Hassle-free Repayment
New-age flexi Personal Loans from NBFCs such as Bajaj Finserv not only allow you to withdraw funds as and when required from your approved loan limit but also lowers your monthly EMIs that aids you in repayment, subsequently boosting your credit score.
As you need to pay interest only on the borrowed amount and not on the entire loan limit, it can lower your monthly EMIs by almost 45%. Also, no charges on pre-payment further aid your cause.
4. An Amount as per your Need with Flexible Tenor
One of the underlying positives of availing Personal Loans from financial institutions, especially NBFCs, is the fact that you can avail the exact amount of funds as per your need with a flexible tenor, ranging from 24-60 months. Thus, you can repay at your own convenience with fewer chances of default.
Repaying the loan on time will improve your credit score. The same gets reflected on your credit report which gives your lender confidence in your money management skills, thus giving you an edge in the future when it comes to availing loans.
However, it’s important to choose the tenor carefully as a longer tenor would entail greater money outflow (principal + interest). On the other hand, a shorter tenor would slightly increase your monthly EMIs, but allows greater savings.
One of the best strategies is to limit outflow and foreclose a loan faster is to increase the EMIs by a certain percentage every year. Today, you can easily know the Personal Loan interest rates online.
Building Credit through SuperCards
Another way to build credit is to opt for a credit card, especially a SuperCard. A SuperCard is more than a credit card with a host of additional benefits. It allows you to convert your limit into a Personal Loan and get cash for up to 90 days with just a flat 2.5% processing fee being charged. You can repay the loan in 3 easy EMIs.
Building credit is not a difficult task if you get the basics right and identify the right financial instruments.
