How to Build Credit From Scratch

Without a credit history, ordinary things can become surprisingly difficult. Renting an apartment, getting a car loan, setting up utilities and even signing up for some phone plans may require a credit check. If you’ve never had a loan or credit card, you might be told you have no score at all.

The good news is that building credit from scratch is entirely doable, and it doesn’t require going into debt. With a few smart steps and consistent habits, you can establish a solid credit history within months.

Why credit history matters

Credit scores are calculated from information in your credit reports, which are maintained by the three major credit bureaus: Equifax, Experian and TransUnion. Those reports show your accounts, balances and payment history. If there’s little or nothing in your reports, scoring models don’t have enough information to generate a score.

Lenders, landlords and insurers often use credit to make decisions, and in many states insurers can use credit-based information to help set premiums. A strong history can mean lower interest rates, smaller security deposits and more options.

Option one: a secured credit card

A secured credit card is one of the most common ways to start. You put down a refundable cash deposit, which usually becomes your credit limit. If you deposit $300, your limit will typically be $300. You use the card like any other credit card, and the issuer reports your activity to the credit bureaus.

Use it lightly, perhaps for one or two small recurring purchases, and pay the balance in full every month. After several months to a year of responsible use, many issuers will review your account and may upgrade you to an unsecured card and return your deposit.

Option two: a credit-builder loan

Credit-builder loans are offered by some credit unions, community banks and online lenders. Instead of receiving money upfront, the loan amount is held in a savings account or certificate of deposit while you make monthly payments. Once the loan is paid off, the money is released to you, sometimes with interest.

Your on-time payments are reported to the credit bureaus, building payment history along the way. In effect, you’re saving money and building credit at the same time.

Option three: become an authorized user

If a family member or trusted person has a credit card in good standing, they can add you as an authorized user. You get a card linked to their account, and in many cases the account’s history appears on your credit report too.

Before doing this, make sure the issuer reports authorized users to the credit bureaus and that the primary cardholder pays on time and keeps balances low. Their mistakes could affect your credit as well. You don’t even need to use the card for this to help.

Option four: a student or starter card

Some issuers offer cards designed for students or people with limited credit history. These typically have modest credit limits and fewer perks, but they don’t require a deposit. Approval may depend on having income of your own.

Other ways to add positive history

Some services let you add rent payments, utilities or phone bills to your credit reports. These can help, though not every lender or scoring model considers them. Ask your landlord whether they report rent payments, or look for reputable rent-reporting services, being mindful of any fees.

Habits that build strong credit

Opening an account is only the beginning. What builds your score is how you manage it over time.

Pay every bill on time. Payment history is one of the most important factors in credit scores, and a single late payment can set you back. Setting up autopay for at least the minimum ensures you never miss a due date.

Keep your balances low compared with your limits. Using a small portion of your available credit and paying it off in full is a strong signal to lenders.

Don’t open lots of accounts at once. Each application can result in a hard inquiry, and too many new accounts in a short time can lower your score and make lenders cautious.

Check your credit reports regularly at AnnualCreditReport.com, the official site for free reports. Look for errors or accounts you don’t recognize, and dispute anything that’s inaccurate.

What to avoid

Be cautious of companies promising to give you instant credit or a new credit identity for a fee. Building credit takes real activity over time, and anyone claiming otherwise is likely running a scam. Also avoid high-cost loans, such as payday loans, which typically aren’t reported in ways that help your credit and can be very expensive.

How long it takes

Many people can generate a credit score within about six months of opening their first account that reports to the bureaus. Building a strong score takes longer, often a year or more of consistent, on-time payments and low balances. Be patient. Every month of responsible use adds to a solid foundation that will serve you for decades.