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How to Build Credit

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How to Build Credit

Begin by becoming an authorized user, or get credit-building loan or secured credit card.

By Erin El Issa Senior Writer Personal finance, analysis of data, credit cards Erin El Issa writes data-driven research on personal finance, credit cards, travel, investing, banking as well as student loans. She is a fan of numbers and hopes to simplify data sets in order to help consumers improve their finances. Prior to becoming an Nerd at the beginning of 2014, Erin was an accountant for tax and freelance personal finance writer. Erin’s work has been cited in The New York Times, CNBC as well as The «Today» show, Forbes and elsewhere. In her free moments, Erin reads voraciously and struggles to keep her two children entertained. She is based in Ypsilanti, Michigan.

and Bev O’Shea personal finance writer | MSN Money, Credit.com, Atlanta Journal-Constitution, Orlando Sentinel Bev O’Shea is a former NerdWallet authority on consumer credit, scams and identity theft. She holds a bachelor’s degree in journalism from Auburn University and a master’s in education from Georgia State University. Before coming to NerdWallet, she worked for daily newspapers, MSN Money and Credit.com. Her work has appeared throughout the world in The New York Times, The Washington Post, the Los Angeles Times, MarketWatch, USA Today, MSN Money and many other places. Twitter: @BeverlyOShea.

Feb 2nd, 2023

Editor: Kathy Hinson Lead Assigning Editor Personal finance, credit scoring, managing money and debt Kathy Hinson leads the core personal finance team at NerdWallet. Previously, she spent 18 years working at The Oregonian in Portland in roles including copy desk chief and team editor and designer. Previous experience included copy and news editing for many Southern California newspapers, including the Los Angeles Times. She received a bachelor’s degree in mass communication and journalism at The University of Iowa.

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The process of building credit can be difficult. If you don’t have credit history, it’s hard to get a loan, a credit card or maybe even an apartment.

How do you expect to show a history of responsible payment if nobody will grant you credit in the first place?

Know how your credit is scored

Find your free score and the factors that impact it, and get suggestions on how to continue building.

Several tools can help you :

If you’re looking to obtain credit card it is possible to begin with a secured credit card or co-signed cards, or ask to be an on the card of someone else.

If you are looking to build credit without using a credit card, you might try a credit-builder loan or a secured loan or co-signed loan. There are also ways to use rent, phone and utility payments to create credit. Some of these ways are absolutely free, while some require a fee.

This article will provide a brief overview of credit-building tools and how you can use them to earn .

Take advantage of a secured credit card

If you’re working on your credit score by hand, you’ll have to begin with a . Secured cards are backed by a cash deposit made upfront. The deposit amount is usually similar to the credit limit. The maximum and minimum amount you can put in is dependent on the card. Certain cards require a minimum deposit of $200. Some companies such as Avant, Deserve and Petal currently offer cards that don’t require the requirement of .

You’ll use the card like any other credit card: Buy things, make a payment prior to or on the due date, then pay charges if you do not pay the balance in full. You’ll receive your deposit back when you close the account.

NerdWallet regularly reviews and ranks options.

Secured credit cards aren’t designed to be used for a long time. The purpose of a secured card is to help build credit to be able to get an unsecure card — one that doesn’t require a deposit, and offers better benefits. Select a secured credit card that has an annual fee that is low and ensure that it reports the payment information to all bureaus , Equifax, Experian and TransUnion. Your credit score is constructed using information collected in your credit reports; cards which report to the three bureaus will allow you to create a more comprehensive credit history.

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Get a credit-builder product as well as a secure loan

A is precisely what it sounds like and its primary purpose is to help people build credit.

Typically the loan amount is held by the lender in an account , and it isn’t released up until loan is paid back. It’s a forced saving program in a sense and the payments you make will be reported to the credit bureaus. These loans are most often offered by credit unions or community banks; offers them online, as does .

It offers a $500 line credit that is designed strictly to build credit.

Another option: If you have funds in deposit at an institution like a credit union or bank inquire about secured loan to help build credit. In these cases, the collateral is the money you have in your account or in a certificate of deposit. The interest rate is typically a bit more than the interest you’re earning on the account, but it may be significantly lower than the other options.

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Use a co-signer

It is also possible to obtain a loan or a credit card by co-signing with a co-signer. But be sure that you and the co-signer understand that the co-signer will be on the hook for the full amount owed if you don’t pay.

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Become an authorized user

A relative or other person may want to allow you to be a beneficiary on his or her card. In this way, the card’s payment history to your credit file, so you’ll want an authorized user with a an extensive history of making payments promptly. In addition, being added in the role of an authorized user may cut down on the time required to create a . It is particularly beneficial in order to build credit.

It is not necessary to use or even own — the credit card in order to benefit from being an approved user.

Request the primary cardholder to discover if the card issuer reports authorized user activities to credit bureaus. The activity is generally recorded, but you’ll need to be sure — otherwise, your efforts in building credit may be in vain.

It is important to reach an agreement regarding how you’ll utilize the card before being added to the authorized users list and be prepared to contribute a portion if that’s the deal you reach.

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Get credit for the bills that you have to pay

like Rental Kharma like Rental Kharma and LevelCredit take a bill that you have already paid and add it to the credit file, helping to establish a history of punctual payments. The credit score of every credit report does not take these payments into account however some do and that could be enough to qualify for the loan or credit card which establishes your credit history for all lenders.

provides a method to get your phone and utility charges reflected on your credit report by the credit bureau. Note that the impact is only applicable to your credit report through Experian and also any credit scores based on it.

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Practice credit-building habits that are good for you.

and a record of punctual payments.

To be eligible for a FICO score, you’ll need at least one account that’s been in existence for at least six months and at the very least one creditor who reported your activity to the credit bureaus in the past six months. A score, which is FICO’s most significant competitor, can be obtained quicker.

Make sure you practice these credit-building habits to build your score:

Try to make your payments punctually and at least the minimum if you can . Making your on time for credit cards or loan payments promptly, every time, is the most important factor you can do to help build your score. If you are able to spend more money than you must, this can be beneficial to your score.

If you use credit cards, make sure you keep your credit utilization to a minimumit is the percentage of your credit limit you utilize. We recommend that you keep your credit utilization under 30% for all cards when possible. The lower your utilization the better for your score.

Beware of applying for several credit accounts at the same time. Applications for credit may result in an unintentional, but temporary decrease in your score. Multiple applications can cause significant damage. NerdWallet recommends spacing applications by about six months, if you are able to research the requirements prior to applying. Note the fact that applications to apply for multiple auto loans or mortgages within the same time frame will be combined in the form of » .»

Keep credit card accounts open. If you do not have an urgent reason to close an account, such as a large annual cost or poor customer service, think about keeping it open. You can also explore downgrading the credit limit or moving your limit to a different card. The closing of an account could hurt your credit utilization , and also reduce your average account age.

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Check your credit scores and reports

A credit report is a document of the way you’ve used credit previously. Your credit scores can tell how you’ll handle credit in the near future, using the information in your credit reports. You should keep an eye on both to watch for errors and to observe your credit-building efforts yield results.

NerdWallet offers a from TransUnion. You can also use educational tools like NerdWallet’s to understand how your financial actions affect your score.

A number of credit card issuers Print FICO scores on their customers’ monthly statements and allow online access as well. Certain issuers of credit cards offer free scores to everyone regardless of whether the cardholder is a.

Request your credit reports and examine them for mistakes and discrepancies. From December 2023 to the present you can review your credit reports free of charge every week by . Resolve any credit report mistakes you find that might affect your scores.

Do you want nerdy advice that’s tailored to your money? All your money will be in one account, and receive specific information to get the most value from it.

About the authors: Erin El Issa is a credit cards expert and a writer for studies at NerdWallet. The work she has written for NerdWallet was featured by USA Today, U.S. News and MarketWatch.

Bev O’Shea was a former credit writer for NerdWallet. Her work was published in publications such as the New York Times, Washington Post, MarketWatch and elsewhere.

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