New-to-credit users have become one of the fastest-growing segments over the past three years but they also present challenges

New-to-credit (NTC) users or first-time users of credit products were one of the fastest-growing consumer segments in the lending category in the last three years, driving sustainable financial inclusion and economic growth in India. Industry data suggests that India currently has around 200 million active credit users and around 800,000 NTC consumers are being added to this pool every year.

Over the last few years, these consumers driven by easy access to credit cards and short-term-personal loans (STPL) grew the retail credit category at a rapid pace. Rapid digitisation of the lending process gave a boost to the rise in NTC customers but also resulted in challenges in background checks and client’s repayment capacity. It took the RBI to step in by increasing risk weightage to control the uncontrolled growth in this category. As a result, the supply has been curtailed with first-time users increasingly finding it difficult to get easy access to credit products. However, there are some specially co-created credit cards for first-time users, helping them to build a good credit history before getting access to other credit products.

In such a situation, managing debt smartly has become important for first-time consumers. For them, using a credit card responsibly is crucial for building a positive credit history and avoiding debt. Here are some financial tips:

Understand your need for a credit card: For new users, it is very important to understand the terms and conditions of your credit card. These include interest rates, fees, grace periods and rewards programs if applicable. We often make the mistake of activating the credit card without understanding the finer details of credit card usage. This mistake may cost you a bad debt and a bad financial history, limiting your access to credit in the future.

Start small: There is always a temptation to overspend with a credit card, especially if you are a first-time user. So, it is advisable to begin with a low credit limit to avoid overspending and to ease into managing credit responsibly.

Always pay on time and in full: Always pay your credit card bill on time and in full to avoid late fees and interest charges. Setting up automatic payments can help ensure you never miss a due date.

Monitor your spending: Keep track of your credit card transactions to stay within your budget and avoid overspending. Many credit card companies offer online or mobile banking apps to help you monitor your spending in real time.

Keep utilisation low: Aim to keep your credit utilisation ratio-the amount of credit you’re using compared to your total credit limit-below 30 per cent. This shows lenders that you’re using credit responsibly and can help improve your credit score.

Avoid cash advances: Cash advances often come with high fees and interest rates, so it’s best to avoid using your credit card for cash withdrawals unless necessary.

Regularly check your credit report: Monitor your credit report for any errors or unauthorised activity. You’re entitled to a free credit report from each of the three major credit bureaus (Equifax, Experian and TransUnion) once a year.

Build an emergency fund: Having an emergency fund can help cover unexpected expenses without relying solely on credit cards, reducing the risk of accumulating debt. Having a financial discipline is very important towards a good financial future. For NTC consumers the early they start is good for a healthy future but with a bit of discipline and consciousness.

(The writer is a co-founder Zet-fintech platform; views are personal)