New-to-credit customer? Opt for a secured credit card

BNPL, small-ticket consumer loans are other options to build credit history

If you are young, have started working recently, you may have undergone the unpleasant experience of applying for a loan, only to see it getting rejected.

You are not alone. According to a study by Transunion, there were more than 160 million underserved customers in India at the end of 2021.

The report defines underserved customers as those whose participation in the credit market is limited to a single type of loan product, with no more than two open accounts for that product.

Such customers’ access to credit remains limited, although they have been in the credit market for at least two years.

“These are customers who may be able to access one or two loan products, but not the entire bouquet,” says Pankaj Bansal, chief business officer, Bankbazaar.

A few other characteristics define them.

“A customer with a long credit history and a good credit score may find eight to 10 lenders willing to lend when he/she applies. An underserved customer may get only one or two offers. Such customers are likely to be charged a higher rate of interest, and the loan amount they are offered may not exceed a few lakhs,” says Gaurav Chopra, founder and CEO, Indialends.

There are several reasons why such customers find it difficult to get credit. One, their income profile may raise a question mark on their ability to repay.

Two, there could be supplyrelated constraints.

“They may belong to geographies or pincodes where lenders offer only one or two loan products,” says Bansal.

The third reason, which is significant, could be that they lack adequate credit history and a good credit score, which lenders can refer to.

According to the Transunion report, such customers face a chicken-and-egg conundrum. They can’t get access to credit because they don’t have a credit history, and they can’t build it since they don’t get access to credit.

Here are a few things such customers can do to enhance their chances of

getting credit.

Make a small start

Such customers should make a start by taking small loans, which they have a higher chance of being offered. “Take a small consumer durable loan that you can repay easily. The loan could be for the purchase of, say, a smartphone on equated monthly instalments,” says Sujata Ahlawat, senior vicepresident and head of direct-toconsumer division, Transunion CIBIL.

Bansal, too, suggests going for buy now-pay later loans.

Salaried employees should apply for a credit card at the bank where they have their salary account.

“Such a bank is in a better position to offer you a credit card, primarily because you already have a relationship with it,” says Ahlawat.

The self-employed should try for a secured credit card.

“Start a fixed deposit (FD) at a bank and request for a credit card against it. Banks become willing to offer a card to a person not having a credit history once he starts an FD,” says Anurag Sinha, co-founder and CEO, Onescore, which helps customers monitor and improve their credit score.

Go for a card without an annual fee to eliminate cost.

“Pay off the outstanding amount every month. You will thus enjoy free credit, and also get the benefit of reward points and cashback. As you use the card, you will be able to build your credit history and credit score,” says Chopra.

Sinha emphasises the importance of using a product that can create a long credit footprint. “Credit cards and home loans are two such products. Of the two, only credit cards are likely to be available to new-to-credit customers.”

If you need a big-ticket loan

If new-to-credit customers require a big-ticket loan, their chances of getting one will be higher if they provide some security.

“Try for a gold loan or a loan against property. Once the collateral is provided, the lender’s risk reduces and it becomes prepared to lend despite a non-existent or poor credit score,” says Chopra.