Get started as an authorized user, or with a credit-builder loan or secured credit card. Many or all the products featured here are from our partners who compensate us. This may influence which products we write about and where and how the product appears on a page. However, this does not affect our tests. Building credit can be complicated. If you don’t have a credit history, it is hard to get a loan, a credit card, or even an apartment. But how are you supposed to show a history of accountable repayment if no one will give you credit in the first location?
If you aim to get a credit card, you could start with a secured credit card or co-signed card, or ask to be a licensed user on another person’s card. If you want to build credit without a credit card, you also may try out a credit-builder loan, guaranteed loan, or co-signed loan. Additionally, there are strategies to use lease, phone, and utility payments to construct credit.
7 Ways to Build Credit Score
If you are building your credit score from scratch, then you’ll likely need to begin with a secured credit card. A secured card is backed by a money deposit you be upfront; the deposit amount is ordinarily the same as the credit limit.
You will use the card like any other credit card: Buy things, make a payment on or before the due date, then pay off interest if you don’t pay your balance in full. You will get your deposit back when you close the account.
- 1. GET A SECURED CREDIT CARD
NerdWallet frequently reviews and rankings the very top secured credit card options. Secured credit cards aren’t meant to be used indefinitely. The purpose of a secured card is to build your credit enough to be eligible for an unsecured card — a card with no deposit and with better rewards. Choose a secured card with a low annual fee and be sure it reports to all 3 credit bureaus, Equifax, Experian, and TransUnion.
- 2. GET A CREDIT-BUILDER LOAN OR A SECURED LOAN
A credit-builder loan is exactly what it seems like — its sole purpose is to help individuals build credit.
Normally, the money that you borrow is held by the creditor in an account rather than released to you till the loan is repaid. It is a forced savings plan of sorts, and your payments are reported to credit bureaus. These loans are most often provided by credit unions or community banks; at least one creditor gives them online.
Another alternative: If you have cash on deposit in a bank or credit union, see about a secured loan to get credit-building. With these, the security is cash on your account or certificate of deposit. The rate of interest is typically a bit greater than the interest you’re making on the account, but it might be significantly lower than your other options.
- 3. USE A CO-SIGNER
Additionally, it is possible to acquire a loan or an unsecured credit card using a co-signer. But be sure that you and the co-signer realize that the co-signer is on the hook for the full amount owed if you don’t pay. (See”What You Want to Know About Co-Signing.”)
- 4. BECOME AN AUTHORIZED USER
A family member or significant other may be willing to add you as an authorized user on his or her card. Doing this adds that card payment history to your credit files, so you will need a primary user that has a very long history of paying on time. Moreover, being inserted as an authorized user can lessen the quantity of time that it requires to produce a FICO score.
You don’t have to use — or even have — the credit card at all to profit from being an authorized user.
Request the primary cardholder to learn whether the card issuer reports authorized user activity to the credit bureaus. That activity usually is reported, but you’ll want to make sure — otherwise, your credit-building efforts may be wasted.
You should agree on if and how you are going to use the card before you are added as an authorized user, and also be ready to pay your share if that’s the deal you strike.
- 5. GET CREDIT FOR THE BILLS YOU PAY
Rent-reporting services such as Lease Kharma and LevelCredit take a bill you are already paying and put it on your credit report, helping to build a favorable history of payments that are secondhand. Not every credit score takes these payments into account, but some do, which may be enough to get a loan or credit card which firmly establishes your credit history for many lenders.
Experian Boost delivers a way to have your cell phone and utility invoices reflected in your credit report together with that credit bureau. Notice that the result is restricted only to your credit report with Experian — and some other credit scores calculated on it.
Assess your credit score for free. Your data updates every week that will help you monitor your progress.
- 6. Practice good credit customs
Building a fantastic credit score takes a history of on-time payments. To get a FICO score, you need a minimum of one account that has been open six months or more and at least one creditor reporting your activity to the credit reporting agencies in the past six months. A VantageScore, from FICO’s largest competitor, can be produced quickly.
Practice these Great credit habits to build your score and show that you’re creditworthy:
Make 100% of your payments on time, not only with credit accounts but also with other accounts, such as utility bills. Bills that go outstanding may be offered to a collection agency, which will seriously hurt your credit.
If you use credit cards, keep your credit use low — use is the portion of your credit limit you utilize. We recommend keeping your credit use below 30% on all cards.
Avoid applying for several credit accounts near together; applications for credit can result in a small, temporary drop on your score. Several programs can cause significant harm. NerdWallet recommends spacing software by about half an hour.
Keep credit card accounts open. Unless you have a compelling reason to close an account, consider keeping it available. Close an account can damage your credit utilization and reduce your average account age.
7. Check your credit scores and reports
A credit report is a list of how you have used credit in the past. Your credit scores predict how you are going to manage credit in the future, using the information in your credit reports. You’ll want to track both to watch for errors and to see your credit-building efforts pay off.
Several personal finance sites, such as NerdWallet, offer a free credit score. Search for a site that also provides free credit report information (NerdWallet does), as well as educational tools such as a credit score simulator. Several credit card issuers print FICO scores on customers’ monthly statements and allow online access too. Some card issuers offer free scores to anyone, cardholder or not. Discover, by way of instance, provides a free FICO score at CreditScorecard.com.
Ask your yearly credit reports and assess each for mistakes and discrepancies. Dispute any mistakes you find that might be lowering your scores.