How to Build a Credit Score From Scratch

Build a Credit Score

In order to have credit history, you need to have some form of credit. And usually the first thing people think of when trying to establish good credit is opening a credit card. Credit cards can help you, but they’re not the only way to build your credit.

So if you’re someone with a nonexistent credit history, here are five things you can do to start building your credit score today.

1. Get a Secured Credit Card.

Sometimes referred to as a starter credit card, this is a great option if you have no credit. To get one, you give the credit card company a cash deposit, which is used as collateral if you can’t make a payment and is given back to you when you close the account. That deposited amount is what your credit limit is. Most people just do a few hundred dollars. Even though it’s not a ton of money, you don’t need it to be. All you have to do with a secured credit card is make one or two purchases a month, and then pay your bill off in full on time each month.

Some people think of a secured credit card like a reloadable prepaid Visa card because you can only spend what you deposit. But unlike debit cards, this card helps your credit score as you use it and pay off your bill.

A secured credit card isn’t meant to be used forever; just to build your credit score enough until you can qualify for an unsecured credit card. And it’s in your best interest to not have this account open forever because many have annual fees, higher interest rates and either limited or no rewards. But if you can, find a secured credit card that doesn’t have an annual fee and a company that reports to the three national credit bureaus—Equifax, Experian and TransUnion.

2. Become an Authorized User on a Family Member’s Credit Card.

If you aren’t ready to open your own credit card, you can become an authorized user on a family member’s card. It can be your mom, dad, aunt, grandpa or even a close friend. You can use the card and pay your share of the spendings, but you don’t even have to use it. As long as the primary cardholder uses the card and pays their monthly bill on time, you build credit.

Before becoming an authorized user do these two things:

  • Double check that their credit card company reports the activity of an authorized user to the credit bureaus. It’s usually reported, but just in case it’s not, this would be a wasted credit-building effort.
  • Know and do your part to keep in good credit standings. You aren’t legally responsible to pay your share of the spendings, but if the primary cardholder wants you to pay, then you better pay on time. If you don’t, it can hurt both of your scores and cause late payments and unnecessary debt.

3. Find a Responsible Co-Signer on a Loan.

More often than not, a bank or credit union will approve a loan for someone who doesn’t have any credit history as long as you have a co-signer with good credit. As the co-signer, they agree to be financially responsible if for some reason you stop paying your bills. So before choosing a co-signer, be sure it’s someone with good or excellent credit who you trust and who trusts you.

This doesn’t mean you should just go and take out a loan. But if you already need to get a student or car loan, this is a good route to go. Proceed with caution, though, because you don’t want to negatively affect your co-signer’s credit or your relationship by not making your payments on time or defaulting on the loan.

4. Apply for a Credit-Builder Loan.

You can also apply for a credit-builder loan. This is a small personal loan designed for people new to credit, and like its name signifies, this loan’s only purpose is to help you build credit. And unlike other loans, you don’t need a good credit score to apply; you simply need enough money to make payments. The amount you borrow is held in an account by the lender while you make payments, which are reported to the credit bureaus, and once you pay off the loan, the lender gives you the money. You can think of it like a sealed savings account.

Most credit unions and community banks offer credit-builder loans. If yours doesn’t, try a Community Development Financial Institution or an online lender.

5. Practice Good Credit-Building Habits.

Whatever route you take, apply these good habits as you start and continue building your credit:

  • Make all of your payments on time. This includes credit accounts, as well as rent, utility bills, cell phone bills, etc. Any unpaid bills can go to a collection agency, and that will severely hurt your credit score.
  • Pay your credit card bill in full or keep your credit utilization ratio low. It’s best for your score to pay off your monthly balance in full each month. If you can’t, at least keep your credit utilization ratio—the number you get when you divide your balance by your credit limit—low, between 10-30% of your credit limit. So if your credit limit is $1,000, then keep your balance at $300 or lower.
  • Keep credit accounts open and active for as long as you can. Credit history is partially dependent on your credit utilization and the length of your payment history. The longer your payment history on your open accounts, the better. So unless you have an unused card with an annual fee, keep your credit accounts open.
  • Check your credit reports for accuracy and signs of fraud. Some people just do this yearly by using the one free credit report from each of the three credit bureaus you’re allotted each year. But you can also sign up with companies like Credit Karma, which keep track of and let you check your credit scores anytime. And don’t worry about hurting your score by checking more than once a year. When you check your own credit, it’s a soft inquiry, meaning it won’t hurt your score, so you can check every week or month if you want.

Most people can get their credit score to a good or average number in one or two years. And don’t feel defeated if you check after that timeframe and don’t see a credit score in the 700s or higher. Earning an excellent credit score takes time, but if you keep up your good credit-building habits, eventually you’ll get there.


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