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How to build credit
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How to Build Credit
Start by becoming an authorized user, or get credit-builder loan as well as a secured credit card.
Written by Erin El Issa Senior Writer Personal finance, data analysis credit card Erin El Issa writes data-driven studies on personal finance, credit cards, travel, investing, banking as well as student loans. She loves numbers and aims to make data sets understandable to help consumers improve the quality of their lives financially. Prior to becoming the Nerd at the beginning of 2014, Erin worked as an accountant for tax purposes and freelance personal financial writer. Erin's work has been cited in The New York Times, CNBC and the "Today" program, Forbes and elsewhere. In her free moments, Erin reads voraciously and struggles to keep her two children entertained. Her home is 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 level degree in journalistic studies from Auburn University and a master's in education from Georgia State University. Prior to joining NerdWallet she was employed by the daily papers, MSN Money and Credit.com. Her work has been featured in The New York Times, The Washington Post, the Los Angeles Times, MarketWatch, USA Today, MSN Money and many other places. Twitter: @BeverlyOShea.
Updated Feb 2, 2023
Edited by Kathy Hinson Lead Assigning Editor Personal finances, credit scoring financial management and debt Kathy Hinson leads the Core Personal Finance team at NerdWallet. Previously, she spent 18 years working at The Oregonian in Portland in capacities such as chief of the copy desk and team director of design and editing. Her previous experience included news and copy editing at various Southern California newspapers, including the Los Angeles Times. She earned a bachelor's degree in journalism and mass communications from the University of Iowa.
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Building credit can be tricky. If you don't have a credit score, it's difficult to get a loan or credit card or even an apartment.
How are you going to show a history of responsible payment if nobody will grant you credit at all?
Be aware of how your credit score is assessed
Check your score for free and the factors that influence it, as well as suggestions on how to continue building.
Several tools can help you :
If you're looking to get credit, you could begin with a secured credit card or co-signed card. You can also request to be a member of another person's card.
If you're looking to establish credit without using a credit card, you could look into a credit-builder loan, secured loan or co-signed loan. There are other options to make use of utilities, rent and phone payments to create credit. Some of these ways are absolutely free, while some require fees.
This article will provide a brief overview of credit-building tools, and how to use them to earn a .
Take advantage of a secured credit card
If you're building your credit score from scratch, you'll likely require the use of a secured card . Secured cards are backed by a deposit in cash that which you deposit in advance. The amount you deposit is typically similar to your credit limit. The amount you can deposit is either minimum or maximum. you can deposit is determined by card. Some card brands require an initial amount of $200. Some companies such as Avant, Deserve and Petal currently offer cards that don't require the requirement of .
You'll be able to use the card as any other credit card: Buy things, pay on or before the due date, and pay interest if you don't pay your balance in complete. You'll receive your deposit back at the time you close the account.
NerdWallet regularly evaluates and ranks various options.
Secured credit cards aren't meant to be used for a long time. The purpose of a secured card is to build your credit enough to qualify for an unsecure credit card, which is a card that doesn't require a deposit, and offers better advantages. Select a secured credit card that has a low annual fee and ensure that it reports information about your transactions to all three bureaus , Equifax, Experian and TransUnion. Credit scores are constructed by the information you get from your credit reports. Cards that report to all three bureaus permit you to build a more comprehensive credit history.
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Purchase a credit-building 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 money you borrow is kept by the lender in an account and is not transferred on your behalf 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 .
The line of credit is $500. credit that is intended to be a credit-building tool.
Another option: If you have funds in deposit at an institution like a credit union or bank Ask them for a secure loan for credit-building. In these cases, the collateral is the money you have in your account or certificate of deposit. The interest rate is generally a bit higher than the interest you're earning on the account, however, it could be less than the other options.
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Use a co-signer
You can also get a loan or an unsecure credit card using co-signers. Be sure you and the co-signer understand that the co-signer will be in charge of the entire amount owed in the event that you don't pay.
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Become an authorized user
A family member or significant other may be willing to allow you to be a beneficiary account on their card. Doing so adds that card's payment record to your credit files which is why you'll want to choose a primary user who has a long history of paying punctually. In addition, being designated in the role of an authorized user can reduce the amount of time it takes to generate a . This is especially beneficial in order to build credit.
You don't have to utilize -- or even possess -- the credit card at all in order to enjoy the benefits of becoming an authorized customer.
Ask the primary cardholder to determine if the card issuer is able to report authorized user activity to the credit bureaus. That activity generally is recorded, but you'll need to confirm -- otherwise, your efforts in building credit may be wasted.
You should come to an agreement about whether and how you'll use the card prior to being designated to the authorized users list, and be prepared to pay for your share in the event that this is the arrangement you reach.
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Credit for the charges you pay
Like Rental Kharma and LevelCredit such as Rental Kharma and LevelCredit take a debt you are already paying and put it on the credit file, assisting to establish a good track record of timely payments. Some credit scores do not take the payments into consideration, but some do, and it may be enough to get a loan or credit card which solidifies your credit score for all lenders.
provides a method to get your utility and cell phone bills appear on your credit report by that credit bureau. Note that the effect is only limited to your credit report with Experian -- and any credit scores calculated on it.
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Practice good credit habits
and a record of punctual and on-time payments.
To be eligible for an FICO score, you must have at least one credit card which has been open for six months or longer and at the very least one creditor who reported your activity to the credit bureaus in the past six months. A , from FICO's biggest competitor, can be obtained faster.
Make sure you practice these credit-building habits to increase your credit score
Try to make your payments on time and pay at least the minimum if you are able . Paying credit card or loan installments punctually, each time is the most important thing you can do to improve your score. If you're able to make more payments than what is required, it can also help your score.
If you use credit cards, ensure that your credit utilization at a minimumit is the percentage that your limit on credit that you use. We recommend keeping your credit utilization at or below 30% on all cards whenever possible. The lower the utilization, the better it is for your credit score.
Do not apply for credit accounts with multiple accounts in close proximity; applying for credit may result in a small, temporary drop on your credit score. Multiple applications can cause significant damage. NerdWallet suggests spacing your applications by about six months when you can as well as researching your needs before you apply. Be aware that multiple applications for auto loans or mortgages in a short span of time are grouped together such as " ."
Keep credit card accounts open. If you do not have a compelling reason to close the account, such as a high annual fee or poor customer service, you should consider opening it. It is also possible to downgrade it or transferring your credit limit to another card. The closing of an account could hurt the credit utilization of your account and decrease the average age of your account.
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Verify your credit scores and reports
A credit report is a record of your credit usage in the past. Your credit scores predict how you'll handle credit in the near future, using the information in the credit report. It is important to keep track of both for any errors and to see your credit-building efforts result in positive results.
NerdWallet offers a credit card from TransUnion. It also offers educational tools like NerdWallet's to see how the actions you make in your finances affect your score.
A number of credit card issuers offer FICO scores on their customers their monthly statements. They also allow access online as well. Some card issuers offer scores at no cost to all customers regardless of whether the cardholder is a.
Request your credit report and examine them for mistakes and discrepancies. Up to December 2023 you are able to check your reports for free every week by . Dispute any credit report errors you spot that may be lowering your scores.
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The authors' bios: Erin El Issa is a credit cards expert and writer on studies at NerdWallet. She has had her work covered on USA Today, U.S. News and MarketWatch.
Bev O'Shea is a former credit writer for NerdWallet. Her work has appeared in publications such as the New York Times, Washington Post, MarketWatch and elsewhere.
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