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How to build credit
Begin 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 studies on personal finance, credit cards, investments, travel, as well as student loans. She loves numbers and aims to demystify data sets to assist consumers in improving the quality of their lives financially. Prior to becoming an Nerd in 2014, she worked as an accountant for tax and freelance personal financial writer. Erin's work has been cited as a result by The New York Times, CNBC as well as the "Today" programme, 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 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 worked for the daily papers, MSN Money and Credit.com. Her work has been 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
Written 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 roles including copy desk chief and team leader for design and editing. Prior experience includes writing copy as well as news editing for various Southern California newspapers, including the Los Angeles Times. She earned a bachelor's degree in mass communication and journalism from Iowa's University of Iowa.
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Building credit can be tricky. If you don't have a credit score, it's difficult to secure a loan, a credit card or maybe even an apartment.
How are you going to prove a track record of responsible payment if nobody will grant you credit at all?
Be aware of how your credit score is evaluated
See your free score and the factors that impact it, plus insights into ways to continue building.
Several tools can help you :
If you're trying to obtain a credit card then you can start 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 a credit card, you could look into credit-building loan or a secured loan or a co-signed loan. There are other ways to use utilities, rent and phone payments to build credit. Some of these options are free, others carry fees.
This article will provide a brief overview of tools for building credit, and the best way to utilize these tools to earn .
Secure your credit card
If you're looking to improve your credit score by hand, you'll require a . Secured cards are secured by a cash payment which you deposit in advance. The deposit amount is usually the same as the credit limit. The amount you can deposit is either minimum or maximum. you can deposit is determined by card. Some cards require a minimum deposit of $200. Some companies , like Avant, Deserve and Petal are now offering cards that don't require a .
You'll use the card like any other credit card: Purchase things, make a payment within or before when due, incur interest if you don't pay the balance in complete. Your deposit will be returned at the time you close the account.
NerdWallet regularly reviews and ranks options.
Secured credit cards aren't meant to be used for a long time. The intention behind a secured card is to help build credit enough to qualify for an unsecured card, which is a card that does not require a deposit and has better advantages. Select a secured credit card that has an annual fee that is low and make sure it reports the payment information to all bureaus , Equifax, Experian and TransUnion. Credit scores are constructed through the data you have collected on your credit reports; cards that provide information to the three bureaus will allow you to create an extensive credit history.
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Purchase a credit-building product or a secured loan
A is precisely what it sounds like -- its sole purpose is to help people build credit.
Typically the money you take out is held at the expense of the lender in a bank account, and is not released for you to use until loan is repaid. It's a forced savings program that is similar to a savings account and the payments you make get reported to credit agencies. These loans are most often offered by credit unions or community banks. They can also be found online, as does .
It offers a $500 line credit that is intended to be a credit-building tool.
Another option: If you have money on deposit in a bank or credit union inquire whether they can provide a security loan to build credit. With these, the collateral is money in your account or certificate of deposit. The interest rate is generally slightly more than the interest you're earning 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 a credit card using the co-signer. Make sure that both of you understand that the co-signer is responsible for the full amount owed if you fail to pay.
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Become an authorized user
A family member or significant other person may want to add you as an account on their card. Doing so adds that card's payment record to your credit files, so you'll want a primary user who has an extensive history of making payments promptly. Additionally, having them designated to the list of authorized users can cut down on the time needed to make a . This is especially beneficial in order to build credit.
It is not necessary to utilize or even have the credit card in any way to gain the benefits of becoming an authorized customer.
Ask the primary cardholder to find out whether the card issuer is able to report authorized user activity to the credit bureaus. The activity is generally reported, but you'll want to be sure -- otherwise, your efforts in building credit may be in vain.
You must reach an agreement regarding how you'll use the card before you're designated to the authorized users list, and be prepared to pay for your share when you make.
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Credit for the charges that you have to pay
Like Rental Kharma such as Rental Kharma LevelCredit take a bill that you're already paying and put it on the credit file, helping to build a history of on-time payments. The credit score of every credit report does not take the payments into consideration, but some do, and it could be enough to get the loan or credit card that establishes your credit history for all lenders.
offers a way to have your phone and utility charges reflected on your credit report by that credit bureau. Note that the effect is only limited to your credit report through Experian -- and also any credit scores based on it.
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Maintain good credit habits
and a record of punctual payments.
To be eligible for an FICO score, you'll need at minimum one account that's been open more than six months, and at least one creditor reporting your activities to credit bureaus over the past six months. A , from FICO's biggest competitor, can be obtained more quickly.
Make sure you practice these credit-building habits to improve your credit score:
Make sure to pay your bills punctually and at least the minimum if you can . Paying credit card or loan installments punctually, each time, is the most important thing you can do to build your score. If you can spend more money than you must, that is also helpful for your score.
If you are using credit cards, make sure you keep your credit utilization at a minimumit is the percentage of the credit limit that you make use of. We recommend that you keep your credit utilization under 30% on all credit cards when possible. The lower your utilization the better for your score.
Beware of applying for credit accounts with multiple accounts at the same time. Applications for credit can cause a small, temporary drop of your scores. Multiple applications can cause significant damage. NerdWallet suggests spacing your applications by about 6 months if you can as well as researching the requirements prior to applying. It is important to note that multiple applications for auto loans or mortgages in a short span of time will be combined in the form of " ."
Keep your credit card accounts active. Unless you have an urgent reason to close the account, such as a high annual fee or slow customer support, think about opening it. It is also possible to downgrade it or transferring your credit limit to another card. Closing an account may affect the utilization of credit and lower your average account age.
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Check your credit scores and reports
A credit report is a record of how you've used credit over the years. Your credit scores predict how you'll deal with credit in the future using the information in the credit report. It is important to keep track of both to watch for errors as well as to see your credit building efforts result in positive results.
NerdWallet offers a from TransUnion. It also offers educational tools, such as NerdWallet's to understand how your the financial decisions you make impact your score.
A number of credit card issuers Print FICO scores on customers their monthly statements. They also allow online access as well. Certain card issuers provide scores for free to everyone, cardholder or not.
Check your credit reports and check each for errors and discrepancies. Up to December 2023 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 affect your scores.
Are you looking for nerdy information that is tailored to your budget? Put all your money in one place, and gain specific information to maximize the value of it.
Authors' Bios Erin El Issa is an expert on credit cards and studies writer at NerdWallet. The work she has written for NerdWallet was featured on USA Today, U.S. News and MarketWatch.
Bev O'Shea is a former credit writer for NerdWallet. Her work was published on the New York Times, Washington Post, MarketWatch and elsewhere.
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