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How to build credit
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How to build credit
Get started as an authorized user or get the 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 research on personal financial matters, credit cards, investments, travel, and student loans. She is fascinated by numbers and strives to demystify data sets to help consumers improve their financial lives. Before becoming a Nerd at the beginning of 2014, Erin worked as an accountant for tax and freelance personal finance writer. Erin's work has been mentioned by The New York Times, CNBC as well as on the "Today" programme, Forbes and elsewhere. In her spare moment, Erin reads voraciously and tries in vain to keep her two children entertained. Erin is from 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. Prior to joining NerdWallet she was employed by daily newspapers, MSN Money and Credit.com. Her work was featured 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 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. Prior to joining NerdWallet, she worked for 18 years working at The Oregonian in Portland in positions such as copy desk chief and team leader for design and editing. Previous experience included the editing of copy and news for several Southern California newspapers, including the Los Angeles Times. She received a bachelor's degree in mass communications and journalism from Iowa's University of Iowa.
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Credit building can be a challenge. If you don't have credit history, it's hard to get a loan, a credit card or maybe even an apartment.
But how do you expect to establish a record of responsible repayment if nobody will grant you credit at all?
Find out how your credit is scored
Check your score for free and the variables that affect it, plus tips on how to keep building.
Several tools can help you :
If you're trying to get credit then you can begin with an secured credit card or co-signed card. You can also request to be a member of another card.
If you want to build credit without a credit card, you might try credit-building loan, secured loan or co-signed loan. There are other ways to use telephone, rent and utility payments to create credit. Certain of these methods are absolutely free, while some require a fee.
This article will provide a brief overview of credit-building tools, and the best way to utilize these tools to earn .
Secure your credit card
If you're building your credit score from scratch, you'll likely require an . Secured cards are secured by a cash payment you make upfront; the amount you deposit is typically the same as your credit limit. The minimum and maximum amount you can deposit is determined by card. Many credit cards have a minimal amount of $200. Certain companies like Avant, Deserve and Petal are now offering cards that don't require a .
You'll use the card like every other card you have: Buy things, pay on or before the due date, and pay the cost of interest if you fail to pay the balance in the full amount. You'll receive your deposit back at the time you close the account.
NerdWallet frequently reviews and ranks options.
Secured credit cards aren't meant to be used continuously. The goal of secured cards is to build credit to be able to get an unsecure card, which is a card that does not require a deposit and has more benefits. Pick a secured card with a low annual fee and ensure that it reports the payment information to all 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 allow you to create an extensive credit history.
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Get a credit-builder product and a loan
A is exactly what it sounds like -- its sole purpose is to help people build credit.
Typically the loan amount is kept by the lender in a bank account, and is not released to you until the loan is repaid. It's a forced saving program in a sense where your repayments are reported to credit bureaus. These loans are typically provided by credit unions or community banks. They also offer them online, as does .
It offers a $500 line credit that is designed strictly to build credit.
Another option is to have money in a deposit account at an institution like a credit union or bank, ask them for a secure loan to build credit. The collateral is your account or a certificate of deposit. The interest rate is generally slightly more than the interest you're getting from the account, but it may be significantly lower than your other options.
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Use a co-signer
It is also possible to obtain a loan or an unsecured credit card using the co-signer. But be sure that you and the co-signer understand that the co-signer will be on the hook for the entire amount owed in the event that you don't pay.
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Become an authorized user
A close family member or others may wish to include you as a user on their card. In this way, the card's payment history to your credit file and you'll need to select a primary user with a long history of paying punctually. Furthermore, being designated in the role of an authorized user may cut down on the time needed to make a . It can be especially useful for a to build credit.
It is not necessary to have or even own the credit card to gain the benefits of having it as an approved user.
The primary cardholder should discover if the issuer of the card reports authorized user activity to the credit bureaus. This activity is usually not reported, but you'll want to make sure -- otherwise, your credit-building efforts may be in vain.
You should come to an agreement on whether and how you'll utilize the card prior to being added as an authorized user and be ready to contribute if that's the deal you make.
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Credit for the charges that you have to pay
such as Rental Kharma and LevelCredit like Rental Kharma and LevelCredit, take a charge you are already paying and put it on the credit file, assisting to build a history of punctual payments. The credit score of every credit report does not take these payments into account however, some do and it could be enough to get a loan or credit card that establishes your credit score for all lenders.
provides a method to get your cell phone and utility charges reflected on your credit report by the 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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Develop good credit habits
and a record of punctual and on-time payments.
For an FICO score, you'll need at least one credit card that's been in existence for six months or longer and at least one creditor reporting your activities to credit bureaus over the past six months. A , from FICO's biggest rival, is able to be created quicker.
Use these credit-building tips to build your score:
Make sure to pay your bills promptly and pay at least the minimum if you are able to . Making on time for credit cards or loan installments punctually, each time, is the most important factor you can do to build your score. If you're able to pay more than the minimum this can be beneficial to your score.
If you have credit cards, make sure you keep your credit utilization at a minimumit is the percentage of your credit limit that you utilize. We suggest keeping your credit utilization below 30% for all credit cards as often as you can. The lower your utilization the better for your credit score.
Avoid applying for multiple credit accounts in close proximity; applying for credit could result in an unintentional, but temporary decrease on your credit score. Multiple applications can cause significant damage. NerdWallet recommends spacing your applications by about 6 months if you can research the requirements prior to applying. Note you can apply multiple times for loans or mortgages in the same time frame will be grouped into one as " ."
Keep credit card accounts open. If you do not have an urgent reason to close an account, for example, the high annual fees or slow customer support, you should consider maintaining it open. You can also explore downgrading it or transferring your credit limit to another card. Closing an account may affect 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 document of the way you've used credit in the past. Your credit scores will tell you how you'll deal with credit in the future using the information in your credit reports. You should keep an eye on both for any errors and to observe your credit-building efforts result in positive results.
NerdWallet provides a service from TransUnion. It also offers educational tools, such as NerdWallet's to understand how your the financial decisions you make impact your score.
Several credit card issuers offer FICO scores on customers' monthly statements and allow online access as well. Some card issuers 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 check your credit reports free of charge every week by . Disput any errors in your credit report you discover that could affect your scores.
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The authors' bios: Erin El Issa is a credit cards expert and a writer for studies at NerdWallet. The work she has written for NerdWallet was featured in USA Today, U.S. News and MarketWatch.
Bev O'Shea was a credit writer for NerdWallet. Her work has been published in publications such as the New York Times, Washington Post, MarketWatch and elsewhere.
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