Good borrowing: Here's how to make wise first-time credit choices

For young people, it is often difficult to get credit or loan when they borrow for the first time. This is because lenders do not get to check their credit track record as a first-time borrower would not have any such records. Lenders usually check the credit history of a borrower with a credit information company (CIC) as they prefer to lend to people with a healthy profile.

Lenders use credit score to assess your capability to pay back a debt on time and in full. Consequently, it is essential to responsibly build your credit history from the start. Before you apply for a loan, make sure you are asking for credit suitable for a student or a young person. Experian, one of the licensed CICs in the country, recently introduced a scorecard for first-to-credit customers or individuals who have never had a loan in the past.This scorecard has six grades: one representing high-risk and six representing low-risk.

Be responsible when you borrow - budget for it

When you are thinking of borrowing in any form, be careful to work out the real cost of the credit you want, including how much you will pay back in total. Draw up a budget to make sure you can afford the repayments.

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The importance of responsible borrowing

When you apply for a loan, you will give the lender permission to contact a CIC and access your credit information report. The lender will know your age and should take that into account when seeing that you have little or no history of credit. Remember, in order to build up a good credit history, you must make all your repayments on time. It really is important, as all repayments - and missed ones - are recorded on your credit information report. This report will be used every time you apply for a loan.

Information about other people

When the lenders share information with a credit bureau that you have a joint loan, or you are a guarantor to a loan, the said account is flagged accordingly in the credit information report as joint, guarantor, individual, authorised user (in case of credit card) etc. Being a guarantor or a co-signee to a joint loan is a serious commitment. Even if the other party has assured you that they will take responsibility for repaying the debt, if they miss payments or default on the commitment, this will also be recorded on your credit information report and will likely affect your ability to get credit in the future.

Help is at hand

If you are struggling with any repayments, let your lenders know as soon as possible. If you keep in touch they will try to help. In the case of education loans, if you are unable to find a job or the salary is not sufficient for you to keep up the equated monthly instalment, you will find most banks willing to extend the moratorium period for up to two years and restructure your loan repayments.
Remember that your credit history starts to build up from the time that you first get credit. Your good financial behaviour now can make your access to credit faster and easier at later stages in life when you may need it more, for example to buy a home or a car or to set up a business. Your student loan is the foundation of your future credit history, so be responsible.

The author is managing director, Experian Credit Information Company of India and country manager, Experian India.