Despite the rapid growth of digital banking and simplified loan processes in the country, building a good credit score remains a significant challenge for first-time borrowers. Young professionals and new entrants to the workforce, in particular—who lack a solid credit history—often struggle to navigate the financial system early on. Experts note that a credit score is not merely a number but a reflection of an individual's financial reliability; consequently, early mistakes can cause long-term damage.

Why does the credit score suffer early on?
1. Lack of credit history: The biggest hurdle

First-time borrowers have no prior track record. Banks and NBFCs categorize such customers as 'high-risk,' leading to delays in loan approval or loans being granted under stringent conditions.

2. Limited access to credit

New customers often receive credit cards with low limits or small personal loans. This restricts their credit exposure, preventing the score from rising rapidly.

3. Negligence regarding EMI and bill payments

Timely payment is the most crucial factor for a credit score. However, many new borrowers miss due dates or make only the 'minimum payment,' which directly impacts their score.

Costly financial behavioral errors
4. High credit utilization (Credit Utilization Ratio)

Heavy usage of low-limit cards pushes the credit utilization ratio above 30%. This signals a high dependence on debt, which can lower the credit score.

5. Frequent loan or credit card applications

Every application for a loan or credit card triggers a 'hard inquiry.' Repeated applications increase the number of inquiries, negatively affecting the score.

6. Lack of understanding of the credit system

Many new borrowers do not understand how credit scores work. For instance, some believe that leaving a credit card balance unpaid improves the score, whereas, in reality, it increases interest costs and lowers the score.

What is the direct impact of this?
If your credit score starts weak, it can have long-term consequences:

1. The likelihood of loan rejection increases.
2. Interest rates charged are higher.
3. Difficulties arise with major financial decisions, such as home or car loans.
4. You are offered lower credit card limits.

What do experts advise?
Financial experts believe that improving a credit score is not a one-day task but a disciplined process. To achieve this:
* Pay every EMI and bill on time.
* Keep credit card utilization below 30%.
* Avoid applying for multiple loans simultaneously.
* Check your credit report regularly.
* Maintain consistent credit behavior over the long term.

How can new borrowers get off to a smart start?
* Take out a small loan and repay it on time.
* Start with a secured credit card.
* Set up auto-debit to ensure payments are not missed.
* Avoid unnecessary expenses and stick to a budget.

Disclaimer: This content has been sourced and edited from Dainik Jagran. While we have made modifications for clarity and presentation, the original content belongs to its respective authors and website. We do not claim ownership of the content.