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How to build credit
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(image: https://www3.ufrb.edu.br/lehrb/wp-content/uploads/2015/07/DSCF0409-300x225.jpg)How to Build Credit
Begin by becoming an authorized user, or get credit builder loan as well as a secured credit card.
Written by Erin El Issa Senior Writer Data analysis, personal finance, credit cards Erin El Issa writes data-driven studies about personal finances, credit cards investments, travel, and student loans. She is a fan of numbers and hopes to simplify data sets in order to assist consumers in improving the quality of their lives financially. Prior to becoming the Nerd during 2014, she worked as an accountant for tax purposes and freelance personal financial writer. Erin's work has been cited in The New York Times, CNBC, The "Today" show, Forbes and elsewhere. In her spare moment, Erin reads voraciously and struggles 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 holds a bachelor's level 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 on 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
Edited by Kathy Hinson Lead Assigning Editor Personal finances, credit scoring managing money 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 director of design and editing. Her previous experience included writing copy as well as news editing for many Southern California newspapers, including the Los Angeles Times. She earned a bachelor's degree in mass communications and journalism from Iowa's University of Iowa.
A majority of the products featured here are provided by our partners who compensate us. This influences which products we feature and the location and manner in which the product is featured on the page. However, this does not influence our opinions. Our views are our own. Here's a list of and .
Building credit can be tricky. If you don't have credit history, it's hard to get a loan, a credit card or perhaps even an apartment.
How are you going to establish a record of responsible repayment if no one is willing to give you credit in the first place?
Be aware of how your credit score is evaluated
See your free score and the factors that influence it, as well as tips on how to continue building.
Several tools can help you :
If you're looking to obtain credit then you can begin by obtaining the secured credit card, or co-signed card, or request to be a member of the card of someone else.
If you want to build credit without the use of a credit card, you could look into a credit-builder loan as well as a secured loan or a co-signed loan. There are also methods to make utilities, rent and phone payments to build credit. Certain of these methods are absolutely free, while some require a fee.
Here's a look at tools for building credit, and how to use them to earn a .
Secure your credit card
If you're building your credit score starting from scratch, you'll probably need to start with the use of a secured card . A secured card is backed by a deposit in cash that made upfront. The deposit amount is usually similar to your credit limit. The minimum and maximum amount you can deposit varies by card. Some cards require a minimum deposit of $200. Some companies , like Avant, Deserve and Petal now offer that don't need the requirement of .
The card will be used as the other cards: Purchase items, pay prior to or on deadline, incur the cost of interest if you fail to make your payment in full. Your deposit will be returned after you close your account.
NerdWallet regularly evaluates and ranks various options.
Secured credit cards don't have the intention to be used forever. The purpose of secured credit cards is to build your credit to be able to get an unsecure credit card -- one that doesn't require a deposit, and offers greater advantages. Choose a secured card with the lowest annual cost and ensure it is reporting payment data to all , Equifax, Experian and TransUnion. Your credit score is built by the information you get from your credit reports; cards that report to the three bureaus will allow you to create an extensive credit history.
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Find a credit-building item and a loan
A is precisely the word you're hearing and its primary purpose is to assist people in building credit.
Typically the loan amount is held at the expense of the lender in a bank account, and is not released on your behalf until loan is repaid. It's a forced savings plan in a sense, and your payments will be reported to the credit bureaus. These loans are usually offered by credit unions or community banks. They also offer them online, just like .
The line of credit is $500. credit that is intended to be a credit-building tool.
Another option: If you have money in a deposit account at a bank or credit union Ask them for a secure loan to build credit. With these, the collateral is your account or certificate of deposit. The rate of interest is usually slightly higher than the interest you're getting from the account, however, it could be lower than your alternatives.
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Use a co-signer
It's also possible to get a loan or an unsecure credit card with the co-signer. Be sure you and the co-signer understand that the co-signer will be on the hook for the entire amount due if you don't pay.
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Become an authorized user
A close family member or other may be willing to include you as a user on his or her card. In this way, the card's payment history to your credit file which is why you'll want to choose to select a primary user with the history of paying punctually. Furthermore, being designated in the role of an authorized user can reduce the amount of time required to create the . It is particularly beneficial in order to build credit.
It is not necessary to use -- or even possess the credit card in order to enjoy the benefits of being an authorized user.
The primary cardholder should find out whether the issuer of the card reports authorized user activity to the credit bureaus. That activity generally is not reported, but you'll want to confirm -- otherwise, your efforts in building credit may be wasted.
You must reach an agreement regarding how you'll utilize the card before you're added as an authorized user, and then be prepared to pay your share if that's the deal you reach.
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Credit is available for the bills that you have to pay
such as Rental Kharma such as Rental Kharma LevelCredit such as Rental Kharma and LevelCredit take a debt that you have already paid and place it on the credit file, helping to build a history of punctual payments. Some credit scores do not take these transactions into account however, some do and it may be enough to qualify for an loan or credit card that establishes your credit history to all lenders.
offers a way to have your phone and utility bills appear on your credit report with this credit bureau. Note that the impact is only applicable to your credit report with Experian (and any credit scores based on it.
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Develop good credit habits
and a track record of timely payments.
To be eligible for a FICO score, you'll need at least one account that's been open six months or longer and at least one creditor that has reported your activities to credit bureaus within the last six months. A score, which is FICO's most significant competitor, can be generated more quickly.
Use these credit-building tips to improve your credit score:
Try to pay your debts promptly and pay at least the minimum if you are able . Making credit card or loan installments punctually, each time is the most important thing you can do to improve your score. If you can pay more than the minimum, it can also help your score.
If you are using credit cards, keep your credit utilization low -it is the percentage of the credit limit that you make use of. We suggest keeping your credit utilization below 30% on all credit cards as often as you can. The lower your utilization the better for your score.
Do not apply for credit accounts with multiple accounts in close proximity; applying for credit may result in some minor, temporary drops on your credit score. Multiple applications can cause significant damage. NerdWallet suggests spacing your applications by about six months when you can research your needs before you apply. Note that multiple applications for auto loans or mortgages in a short span of time are grouped together as " ."
Keep credit card accounts open. If you don't have an important reason to shut down an account, like a high annual fee or slow customer support, you should consider opening it. You could also consider downgrading it or transferring your credit limit to a different card. Closing an account may affect your credit utilization and reduce the average age of your account.
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Make sure you check your credit scores as well as reports
A credit report is a record of your credit usage in the past. Your credit scores will tell you how you'll handle credit in the future, using the information contained in the credit report. You should keep an eye on both for any errors as well as 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 financial actions affect your score.
Several credit card issuers print FICO scores on customers monthly statements, and permit online access to. Certain card issuers provide scores for free to everyone regardless of whether the cardholder is a.
Request your credit reports and examine them for mistakes and discrepancies. Up to December 2023 you can review your reports for free weekly by . Disput any errors in your credit report you spot that may affect your scores.
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The authors' bios: Erin El Issa is an expert on credit cards and studies writer at NerdWallet. She has had her work highlighted on USA Today, U.S. News and MarketWatch.
Bev O'Shea was a 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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