Understanding No-Hit or -1 Credit Scores and Steps to Build Your Credit Profile

If you have never availed any loans or had any credit cards in India, you will not have records with any credit information company; therefore, no credit history. As such, when you try to check your credit score from any of the four credit bureaus, you will get a score of -1 or no score (also called No Hit or NH cases).

What Does a No-Hit or -1 Credit Score Mean?

A No-Hit, -1, or “No Score” status occurs when an individual has no prior credit history with any of the credit bureaus. This typically applies to first-time borrowers, young professionals, or individuals who have never availed loans or credit cards. Since credit bureaus rely on reported credit activity from banks and financial institutions to generate a credit score, the absence of such data means no score can be calculated.

A -1 or NH is not a reflection of poor financial behaviour; it simply indicates that there is insufficient data to assess creditworthiness. It is a neutral status that signals the individual is at the starting point of building a credit history.

Implications of Having No Credit Score

While a No-Hit or -1 score is not negative, it can influence how lenders evaluate your credit applications. Banks and NBFCs have limited information to assess your repayment capacity, which may result in:

• Longer processing times: Lenders may take additional time to verify your financial reliability through alternative documents or references.
• Limited loan options: Without a credit score, access to higher-value loans or premium credit products may be restricted.
• Higher perceived risk: Lenders may adopt conservative terms, such as lower credit limits or higher interest rates, to mitigate potential risk.

In essence, a No-Hit or -1 score requires individuals to demonstrate creditworthiness through other means until a credit history is established.

Implications of Having No Credit Score

If you would like to build your own credit history and get yourself a credit score, you will have to begin by taking a loan or a credit card and use it effectively over time. Here are a few simple ways by which you can build a credit history:

1. Apply for a Credit Card with your Existing Bank:

You can apply for a credit card with the bank with which you have an existing relationship, like your salary account. As the banks are generally inclined to offer additional facilities to their existing customers, the absence of a credit history may not bother them. Go for the most basic credit card on offer to begin with. However, you may get a lower credit limit in such cases, but nevertheless, your credit card is there, and so is your credit history. Further, once you have a credit card, make sure to pay off the credit card dues well in time, as regular repayments will translate into a better score for you.

2. Apply for a Secured Credit Card:

If the first option doesn’t work out for you, you can deposit a small amount, say 30K, into a Bank FD, and apply for a secured credit card against the deposit. The bank will assign you a credit limit of up to 80% of the deposit amount. This is generally a good starting point for even self-employed individuals and professionals.

3. Apply for a Small Ticket White Goods Loan:

You may also purchase your next smartphone, TV, or laptop on EMI by applying for a small consumer durable loan/ EMI loan. The financiers are available at most large-format electronics retail stores as well as on online e-commerce websites. Consumer Durable Financiers are more comfortable approving loans for customers with no credit history, and the approvals are also almost instant. The good news is that these loans are usually zero-cost EMI loans.

4. Apply for a Secured Personal Loan:

Most of the banks can offer you a personal loan against the security of your existing term deposits (loan against deposits). Since the term deposit is generally enough to cover the personal loan amount along with interest for a reasonable period, banks may not check your credit report and sanction you a personal loan. Usually, such personal loans may be lighter on your pockets too, as such loans typically carry an interest rate of your FD rate plus 1-2% and FD rates are presented in the range of 6-8%. So, the effective interest rate can be 7-10%.

Build Gradually, Manage Wisely

Your credit history will not be built overnight. It may take six months or even a year, depending on how well and often you use and handle credit. However, ensure regular repayments of your loans and credit cards, so that you have a good credit score, reflecting good credit habits. Further, once you have a credit history and a credit score, make sure that you manage your loans and credit cards smartly.

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