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How to build credit
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How to Build Credit
Start by becoming an authorized user or by obtaining a credit-builder loan or secured credit card.
by Erin El Issa Senior Writer Data analysis, personal finance, credit cards Erin El Issa writes data-driven studies about personal financial matters, credit cards, travel, investing, banking and student loans. She loves numbers and aims to demystify data sets to help consumers improve the quality of their lives financially. Prior to becoming an Nerd during 2014, she worked as a tax accountant and freelance personal financial writer. Erin's writing has been featured in The New York Times, CNBC and on the "Today" programme, Forbes and elsewhere. In her spare time, Erin reads voraciously and is unable to keep up with her two children. 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 has a bachelor's degree in journalistic studies 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.
Updated February 2 2023
Editor: Kathy Hinson Lead Assigning Editor Personal finance, credit scoring, financial management and debt Kathy Hinson leads the Core Personal Finance team at NerdWallet. Prior to joining NerdWallet, she worked for 18 years with The Oregonian in Portland in positions such as copy desk chief and team editor and designer. Her previous experience included writing copy as well as news editing at various Southern California newspapers, including the Los Angeles Times. She graduated with a bachelor's in mass communication and journalism in the University of Iowa.
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Credit building can be a challenge. If you do not have a credit score, it's difficult to obtain a loan, a credit card or perhaps even an apartment.
How are you going to prove a track record of credit-worthy repayment when nobody will grant credit at all?
Be aware of how your credit score is evaluated
Find your free score and the variables that affect it, and get suggestions on how to keep building.
Several tools can help you :
If you're looking to apply for a credit card then you can begin with the secured credit card, or co-signed card. You can also apply to be on another card.
If you want to build credit without a credit card, you might look into credit-builder loan or a secured loan or co-signed loan. There are many methods to make telephone, rent and utility payments to build credit. Some of these ways are absolutely free, while some require fees.
Here's a look at tools for building credit, and how to use them to earn a .
Secure your credit card
If you're looking to improve your credit score starting from scratch, you'll probably have to begin with a . A secured card is backed by a cash payment made upfront. The deposit amount is usually similar to your credit limit. The amount you can deposit is either minimum or maximum. you can put in is dependent on the card. Certain cards require a minimum amount of $200. Some companies , like Avant, Deserve and Petal currently offer cards that don't require an .
You'll be able to use the card as any other credit card: Purchase things, make a payment prior to or on deadline, incur the cost of interest if you fail to pay the balance in the full amount. The deposit will be returned when you close the account.
NerdWallet frequently reviews and ranks choices.
Secured credit cards don't have the intention 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 -- a card that doesn't require a deposit, and offers better advantages. Select a secured credit card that has an annual fee that is low and ensure it is reporting payment data to all , Equifax, Experian and TransUnion. Credit scores are constructed through the data you have collected on your credit reports. Cards that provide information to all three bureaus allow you to build an extensive credit history.
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Get a credit-builder product or a secured loan
A is precisely what it is spelled and its primary purpose is to assist people in building credit.
Typically the loan amount is held in the hands of your lender in an account and not released to you until the loan is repaid. It's a forced savings plan of sorts, and your payments will be reported to the credit bureaus. These loans are typically provided by credit unions or community banks; offers them online, as does .
The line of credit is $500. credit that is intended to build credit.
Another option is to have funds in deposit at an institution like a credit union or bank, ask them for a secure loan to build credit. The collateral is money in your account or a certificate of deposit. The interest rate is typically somewhat higher than the interest that you're making on the account however, it could be lower than your alternatives.
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Use a co-signer
You can also get a loan or an unsecure credit card using the co-signer. Make sure that both you and the co-signer know that the co-signer will be on the hook for the full amount owed if you fail to pay.
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Become an authorized user
A relative or other person may want to add you as an on his or her card. Doing so adds that card's payment history to your credit file which is why you'll want to choose a primary user who has an extensive history of making payments on time. Additionally, having them included to the list of authorized users may cut down on the time required to create a . It can be especially useful for building credit.
You don't need to have -- or even possess the credit card at all in order to benefit from becoming an authorized customer.
Ask the primary cardholder to discover if the card issuer is able to report authorized user activities to credit bureaus. That activity generally is reported, but you'll want to make sure otherwise, your efforts to build credit could be in vain.
It is important to reach an agreement about whether and how you'll use the card before being added to the authorized users list and be prepared to pay for your share if that's the deal you make.
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Credit is available for the bills you pay
like Rental Kharma and LevelCredit take a bill that you're already paying and add it to the credit file, helping to build a positive history of punctual payments. Some credit scores do not take the payments into consideration but some do and it could be enough to qualify for the loan or credit card that establishes your credit history for all lenders.
It allows you to see your utility and cell phone bills appear on your credit report with that credit bureau. Note that the effect is limited only to your credit report through Experian -- and also any credit scores based on it.
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Develop good credit habits
and a record of punctual and on-time payments.
To have a FICO score, you'll need at least one credit card that's been in existence for at least six months and at least one creditor that has reported your activities to credit bureaus within the last six months. A , from FICO's biggest competitor, can be obtained more quickly.
Make sure you practice these credit-building habits to build your score:
Try to make your payments promptly and pay at least the minimum if you are able to . Paying credit card or loan payments punctually, each time, is the most important factor you can do to help build your score. If you are 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 to a minimumwhich is the amount of your credit limit you make use of. We recommend keeping your credit utilization at or below 30% for all credit cards when possible. The lower your utilization the better for your credit score.
Beware of applying for several credit accounts at the same time. Applications for credit may result in a small, temporary drop in your score. Multiple applications can cause significant damage. NerdWallet recommends spacing applications by about six months in the event that you are able as well as researching your needs before you apply. Note the fact that applications to apply for multiple auto loans or mortgages in a short span of time are grouped together in the form of " ."
Maintain your credit card accounts open. If you do not have a compelling reason to close an account, like a high annual fee or slow customer support, consider maintaining it open. You can also explore downgrading it or moving the credit limit to another card. Closing an account can hurt the utilization of credit and lower the average age of your account.
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Make sure you check your credit scores as well as reports
A credit report provides a record of your credit usage over the years. Your credit scores can tell the way you'll manage credit in the future using the information contained in the credit report. It is important to keep track of both for any errors as well as to see your credit building efforts pay off.
NerdWallet offers a from TransUnion. You can also use educational tools like NerdWallet's tool to determine how the financial decisions you make affect your score.
Several credit card issuers Print FICO scores on customers their monthly statements. They also allow online access as well. Certain issuers of credit cards offer free scores to anyone regardless of whether the cardholder is a.
Request your credit reports and review them for any mistakes and discrepancies. Through December 2023 you can review your reports for free weekly by . Resolve any errors on your credit report you discover that could affect your scores.
Do you want nerdy advice that's tailored to your money? Bring all your money into one view, and get specific information to make the most of it.
The authors' bios: Erin El Issa is a credit cards expert and studies writer at NerdWallet. She has had her work covered in USA Today, U.S. News and MarketWatch.
Bev O'Shea was a credit writer at NerdWallet. Her work has been published in publications such as the New York Times, Washington Post, MarketWatch and elsewhere.
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