How to build credit

Learn how to build credit from scratch

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Credit makes the financial world go round, and if you have a limited or nonexistent credit history, it will be a challenge to get approval from both lenders and landlords alike. So, whether your goal is to finance a car with a good rate or sign an apartment lease, you will need to start building up your credit to prove you are creditworthy.

Key insights

  • Trusted family members or friends can add you as an authorized user to their credit card.
  • Secured credit cards are easier to qualify for because you put down a deposit to establish your credit line.
  • If you are paying rent, there is a way to make those monthly payments count towards your credit score.

6 ways to build credit

When you are starting from scratch, building credit is not as easy as opening a new credit card and using it responsibly. You will have to start at the bottom. But we’ve laid out a few different ways to do this, starting with the easiest.

These tips are also helpful for those who need to improve bad credit, though it takes longer to repair your credit than to build it from scratch.

Become an authorized user

The easiest way to start building your credit is to be added as an authorized user to someone else’s credit card. Ideally, this person should be financially responsible, paying their minimum balance each month on a well-established card that reports authorized user activity to the credit bureaus. Adding an authorized user requires no credit check or permission from the creditor, and the user can be removed at any time.

As an authorized user, you do not even need to have access to the card to benefit, so a parent or grandparent can add you and never give you your own card. Additionally, if the primary cardholder has frequent late or missed payments, this could affect your credit score poorly, but you will never be responsible for the bill.

Apply for a secured credit card

Another easy way to start building credit is to open a secured credit card. A secured credit card is similar to a standard credit card –– you use it to buy things, and you incur interest when you don’t pay the full amount. The difference is that you need to put down a cash deposit to obtain a secured credit card. The deposit is generally the same amount as your credit limit, and you’ll get it back in full when you close the account, provided you made your payments on time.

By requiring a deposit, issuers can provide credit to individuals who have little to no credit history. Many credit card companies that offer secured credit cards will offer you the opportunity to move to an unsecured card once you make enough on-time payments and improve your credit score.

Use a rent-reporting service

Traditionally, your monthly rental payment isn’t reported to the credit bureaus. However, there are some rent-reporting options. In September 2022, Fannie Mae launched the Positive Rent Payment program to help property owners of Fannie Mae-financed buildings report positive rent payments for their tenants. Since the start of the program, it has helped over 10,000 individuals establish credit.

There are also rent-reporting services available with a one-time fee. Companies like Rental Kharma or RentTrack can add the rent you’re already paying to your credit report.

Take out a credit-builder loan

A credit-builder loan is different from a traditional loan or line of credit. Instead of paying a creditor back what you borrowed, you will make regular payments to a savings account. The bank or credit union will report your payments to the credit bureaus, and at the end of the payment term, you will have access to the savings account.

» MORE: Best credit-builder loans

Get a co-signer

Most major creditors don’t allow co-signers for credit cards, but you can get one on an auto loan or personal loan. This is a viable option if you’re in the market for a car loan or personal loan but don’t qualify based on your credit score or income.

Note that it is a risk for your co-signer to agree. If you forgo your payments, your co-signer is responsible for making payments and will also take a credit hit.

Apply for a student credit card

If you are currently a college student, you could be eligible for an unsecured student credit card. Depending on the credit card company, these student cards have no annual fees, don’t require a credit score to apply and even come with limited cash back perks.

You can always apply for preapproval without a hard credit check to see if you qualify before committing.

What are the best habits to build credit?

“A big opportunity for improving your credit is making on-time payments and not missing any payments,” said Kendall Meade, a financial planner at SoFi.

“Payment history is generally the largest factor in determining your credit score and anything less than 100% of bills paid on time and in full will bring your score down. It is best to set up autopay, so your bills are paid on time and in full each month to avoid any issues with payment history.”

Other helpful habits to build your credit include:

  • Borrow wisely. Don’t overspend and get sucked into costly debt.
  • Keep your debts minimal. Just because you can spend up to $1,000 on your credit card doesn’t mean you need to max it out each month.
  • Diversify your debts. Having an auto loan alongside your credit cards shows lenders you can handle a variety of debt responsibly.
  • Don’t close your accounts. Even if you no longer use them regularly, keep credit cards open to establish a higher credit age average.
  • Don’t open too many accounts at once. Several new accounts popping up at once can lower your credit score.

If at any time your debt or credit score becomes too hard to manage, a certified credit counselor can help you.

» MORE: What is a good credit score?

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    How long does it take to build credit?

    Fortunately, it doesn’t take too long to build credit — typically several months — if you’re starting from scratch. Remember, it takes longer to fix poor credit than it does to build credit, so build credit the right way by developing responsible spending habits.

    When should you start building credit?

    The sooner you start building your credit history, the better. If you’re 18 or older and don’t have a credit history yet, you will need a job or proof of financial security before being approved for a secured card or student credit card. Parents can make their children authorized users at any age, which means kids can build a credit history long before they turn 18 and get a head start on their credit.

    Is no credit history bad credit?

    No, you will not be seen as someone with bad credit, but rather as someone with a limited credit history. Lenders and creditors do not view you as financially irresponsible, but since you have not proven yourself with credit yet, you are still considered a financial risk. As such, you’ll likely have a harder time getting approved for financing.

    Bottom line

    Initially, you won’t get the best credit card offers or loan rates when your credit history is still new. However, if you keep up good credit habits, you can eventually replace secured credit cards with better rewards cards and build a strong credit history within a few years.

    Article sources
    ConsumerAffairs writers primarily rely on government data, industry experts and original research from other reputable publications to inform their work. Specific sources for this article include:
    1. Experian, “ How Long Does It Take to Build Credit? ” Accessed July 9, 2023.
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