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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 and secured credit cards.
Written by Erin El Issa Senior Writer Data analysis, personal finance credit cards Erin El Issa writes data-driven research on personal finances, credit cards investment, travel, banking and student loans. She is fascinated by numbers and strives to simplify data sets in order to help consumers improve their financial lives. Before becoming a Nerd during 2014, she worked as a tax accountant and freelance personal financial writer. Erin's work has been mentioned as a result by The New York Times, CNBC as well as on the "Today" programme, Forbes and elsewhere. In her spare moments, Erin reads voraciously and is unable to keep up with her two kids. 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 journalism 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 been featured on The New York Times, The Washington Post, the Los Angeles Times, MarketWatch, USA Today, MSN Money and other publications. Twitter: @BeverlyOShea.
Updated February 2, 2023
Written by Kathy Hinson Lead Assigning Editor Personal financial, 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 at The Oregonian in Portland in positions such as copy desk chief and team editor and designer. 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 journalism and mass communications in the University of Iowa.
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Building credit can be tricky. If you do not have a credit score, it's difficult to secure a loan, a credit card, or maybe even an apartment.
But how do you expect to establish a record of credit-worthy repayment when no one is willing to give credit at all?
Know how your credit is assessed
Check your score for free and the variables that affect it, as well as tips on how to keep building.
Several tools can help you :
If you're looking to get credit card, you could begin by obtaining an secured credit card or co-signed card. You can also ask to be an on the card of someone else.
If you're looking to establish credit without using a credit card, consider credit-builder loan or a secured loan or a co-signed loan. There are other methods to make utilities, rent and phone payments to build credit. Certain of these methods are completely free, while others require costs.
Here's a look at credit-building tools and how you can use these tools to earn .
Get a secured credit card
If you're trying to build your credit score from scratch, you'll likely require an . Secured cards are backed by a cash deposit made upfront. The amount you deposit is typically similar to the credit limit. The maximum and minimum amount you can deposit is determined by card. Certain cards require a minimum deposit of $200. Some companies , like Avant, Deserve and Petal now offer that don't need the requirement of .
You'll use the card like any other credit card: Buy things, pay within or before when due, incur charges if you do not pay your balance in full. The deposit will be returned at the time you close the account.
NerdWallet regularly evaluates and ranks various options.
Secured credit cards don't have the intention to be used forever. The intention behind a secured card is to build your credit so that you can qualify for an unsecure card -- a card that does not require a deposit and has better advantages. Select a secured credit card that has the lowest annual cost and ensure it is reporting payment data to all , Equifax, Experian and TransUnion. Your credit score is constructed by the information you get from your credit reports; cards that report to all three bureaus permit you to create an extensive credit history.
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Get a credit-builder product or a secured loan
A is exactly what it sounds like -- its sole purpose is to help people build credit.
Typically the loan amount is held in the hands of your lender in a bank account, and is not transferred to you until the loan is paid back. It's a forced savings plan of sorts and the payments you make will be reported to the credit bureaus. These loans are typically provided by credit unions or community banks. They can also be found on the internet, and so does .
The line of credit is $500. credit, which is specifically designed to build credit.
Another option: If you have funds in deposit at the credit union or bank inquire about a secured loan for credit-building. With these, the collateral is money in your account or in a certificate of deposit. The interest rate is generally a bit more than the interest you're making on the account but it may be significantly less than the alternatives.
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Use a co-signer
You can also get a loan or an unsecure credit card by co-signing with the co-signer. Be sure both of you understand that the co-signer is in charge of the entire amount due if you fail to pay.
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Become an authorized user
A close family member or other may be willing to allow you to be a beneficiary account on their card. In this way, the card's payment history to your credit file and you'll need an authorized user with a a long history of paying promptly. In addition, being designated as an authorized user can reduce the amount of time needed to make a . It is particularly beneficial for building credit.
You don't need to utilize -- or even possess the credit card to gain the benefits of becoming an authorized customer.
Request the primary cardholder to discover if the card issuer is able to report authorized user activities to credit bureaus. The activity is generally reported, but you'll want to make sure otherwise, your efforts to build credit could be in vain.
You should come to an agreement regarding how you'll utilize the card before being designated as an authorized user, and be ready to pay your share when you strike.
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Credit is available for the bills you pay
like Rental Kharma such as Rental Kharma LevelCredit like Rental Kharma and LevelCredit, take a charge you are already paying and place it on the credit file, helping to establish a good track record of punctual payments. Not every credit score takes the payments into consideration however, some do and that may suffice to secure a loan or credit line that establishes your credit score for all lenders.
offers a way to have your utility and cell phone bills reflected in your credit report with the credit bureau. It is important to note that the effect is limited only to your credit report through Experian -- and the credit scores calculated on it.
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Develop good credit habits
and a history of on-time payments.
To have a FICO score, you must have at minimum one account that's been in existence for at least six months and at least one creditor reporting your activities to credit bureaus in the past six months. A score, which is FICO's most significant competitor, can be generated quicker.
Use these credit-building tips to increase your credit score
Make sure to pay your bills promptly and pay at least the minimum you can . Making your on time for credit cards or loan payments punctually, each time is the most crucial step you can take to build your score. If you're able to spend more money than you must amount, that is also helpful for your score.
If you use credit cards, ensure that your credit utilization low -it is the percentage of your credit limit that you use. We recommend keeping your credit utilization at or below 30% for all credit cards as often as you can. The lower your usage the better for your credit score.
Beware of applying for multiple credit accounts at the same time. Applications for credit can cause a small, temporary drop in your score. Multiple applications can cause significant damage. NerdWallet suggests spacing your applications by about six months in the event that you are able, and researching the for your needs before you apply. Note that multiple applications for auto loans or mortgages in a short span of time will be grouped into one in the form of " ."
Maintain your credit card accounts open. If you do not have an important reason to shut down the account, such as a high annual fee or slow customer support, think about keeping it open. You can also explore downgrading it or moving the credit limit to another card. Closing an account may affect your credit utilization and reduce your average account age.
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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 previously. Your credit scores predict how you'll deal with credit in the future by analyzing the data 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 provides a service from TransUnion. You can also utilize educational tools, such as NerdWallet's tool to determine how the financial decisions you make can affect your score.
A number of credit card issuers offer FICO scores on customers monthly statements, and permit access online as well. Some card issuers offer scores for free to everyone whether cardholder or not.
Request your credit reports and review them for any mistakes and discrepancies. From December 2023 to the present you are able to check your credit reports free of charge every week by . Disput any errors in your credit report you spot that may be lowering your scores.
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The authors' bios: Erin El Issa is an expert on credit cards and a writer for studies at NerdWallet. The work she has written for NerdWallet was highlighted in USA Today, U.S. News and MarketWatch.
Bev O'Shea was a credit writer at NerdWallet. Her work was published in publications such as the New York Times, Washington Post, MarketWatch and elsewhere.
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