Approximately 45 million Americans have no credit history, according to the US Government Accountability Office. Credit scores impact numerous aspects of our financial lives, from securing a mortgage or car loan to obtaining favorable interest rates on credit cards.
This guide explores practical steps and strategies to help you build credit from scratch and pave the way for a stronger financial future.
Key takeaways
Start by learning the key aspects of your credit score, including FICO models and the five categories that impact your score.
Build credit by using tactics such as getting a secured credit card, paying all bills on time, and getting a regular credit card.
Regularly check your credit score for errors and dispute any inaccuracies to maintain an accurate credit report.
Building credit takes time. Depending on your starting point, it could take months or years to establish good credit.
Understanding your credit score before building credit
Before you build credit, it’s essential to grasp the fundamental aspects of your credit score. FICO 8 and 9 are the two most commonly used credit scoring models. Five categories make up your FICO credit score:
Payment history 35% — Factors in on-time, late and missed payments.
Amounts owed 30% — Factors in owed balances on your active accounts.
Length of credit history 15% — Factors in the ages of your active accounts.
New credit 10% — Factors in how often you apply for new credit.
Credit mix 10% — Factors in the different types of active accounts you have.
8 ways to build credit
Here are eight tactics you can use to start building your credit score.
1. Get a secured credit card
If a traditional credit card or becoming an authorized user isn’t your speed, there are other options. A secured credit card works like a traditional credit card, except they’re secured by a deposit or an existing bank account. When you open them, you either link a bank account and the balance sets your limit, or you make an opening deposit that sets your credit limit.
Other than the security, most credit-building credit cards work the same as traditional credit cards, such as charging interest and the ability to gain payment history from making payments. There are also many credit-building credit cards that don’t charge APR at all, such as the Current Build Card, the Chime Credit Builder Card, and the Fizz card.
2. Pay all your bills on time
The simplest and most effective way to build credit is paying everything on time — credit card minimum payments, auto loans, student loans, house payments and everything in between.
When you apply for new credit, a lender is most concerned with your ability to repay a loan on time — so your payment history is the most important factor in determining your credit score. If multiple late payments are reported, it’s likely doing major damage. One late payment can damage your credit score by as much as 100 points, depending on your current credit history and score.
This also applies to accounts that aren’t being reported to the credit bureaus, such as your utility bills, rent and phone bill. Even though those personal accounts aren’t normally reported, if you’re late on a utility bill, there’s a possibility that the utility company could report the late payment.
Managing your student loans On average, students have a total of $34,000 in student debt, and that amount is climbing each year. If your student loans are left unchecked, they can drastically lower your credit score. If you can manage it, set up a repayment plan with your student loan service provider or consider refinancing options. By paying your student loans, you can earn a positive repayment history. Once they’re paid off, you may see a temporary reduction in your credit score, but it’s likely to rebound into a much higher score.
Our expert says: Consider autopay to manage your bills easier
"Setting up automatic payments on consistent bills, such as rent, your car loan or phone bill, can help you keep track of all your bills, maintain a positive payment history and relieve the stress of having to remember all your due dates.
But fluctuating bills aren’t recommended for autopay. For example, if you have your electric bill on autopay and the bill is higher than normal, you could get hit with an overdraft fee with your bank or risk the transaction not going through if you don’t have enough money to cover it."
Even if you don’t use the credit card, having one can help build credit. If you only have installment loans on your credit reports, your credit mix is lacking, so adding a revolving credit account like a credit card can help — but only if you manage it well.
Paying your credit card balances off each month can help build a positive payment history and keep your credit utilization low, which plays into your amounts owed. Aim to keep your credit card balances under 30% of their credit limit. Any higher than that can be a sign that you’re overextended financially and could bring your credit score down.
4. Become an authorized user
If you can’t qualify for a credit card on your own, consider becoming an authorized user. An authorized user is someone who gets added to an existing credit card account. You can benefit from adding a new account to your credit reports, start to gain from the payment history and likely get your own card to use if the primary account holder allows it.
Just keep in mind that if you become an authorized user, your credit reports may be at the mercy of the primary account holder. If they make late payments or have a high balance on the credit card, it could negatively impact your credit score.
5. Get a car loan
If you need a car, an auto loan is great for building credit for multiple reasons. And often, a car loan is the first type of loan someone takes out.
Auto loans typically offer a long repayment history that you can benefit from with timely payments, and it can add to the average age of your credit history over time. Adding an installment loan benefits your credit mix if you don’t already have any active installment loans.
Auto loans are secured by the vehicle you’re financing, so they’re typically much easier to qualify for compared to unsecured loans like personal loans. Just keep in mind that if you can’t repay the car loan, you could risk getting the car repossessed, which not only ruins your week but can also lower your credit score.
6. Get a credit-building loan
A credit-building loan can be thought of as a savings account that you’re obligated to add to each month. They’re often easier to qualify for compared to costly personal loans or other borrowing methods, since they’re designed for no-credit borrowers.
A credit-building loan isn’t a “loan” in the traditional sense, in that you don’t actually get the funds right away. The lender sets aside the amount you apply for, and you repay the lender in installments until you’ve “repaid” the amount. Over the term, you gain payment history and add an account to your credit reports. Once the term is over, you get access to the funds.
Credit-building loans are also an alternative way to build your kids’ credit history early. For instance, FreeKick, an FDIC-insured deposit account and credit-building loan can help kids between 14 and 25 years old build a credit history.
You can request copies of your credit reports from AnnualCreditReport.com, or from the credit bureaus themselves. Once you have your report, read through it carefully and look for any errors that could be negatively affecting your score. If you find any errors, dispute it with the credit bureau that reported it to get it removed.
Keep an eye out for:
Incorrect personal information, such as wrong SSN or date of birth
Inaccurate loan balances
Negative marks that don’t belong, such as inaccurately reported payments
Accounts in collections that are inaccurate
Signs of identity theft, like accounts you didn’t open
8. Sign up for a rent reporting service
If you don’t have a mortgage or any other loans, but you rent, you can still build some credit history. There are rent-reporting services, such as PayYourRent, Experian Boost® and RentTrack, which can send your rent payments to the credit bureaus.
Just keep in mind that not all rent reporting services are free, but the cost may more than make up for the reporting action you can gain from your rent. This is especially helpful if you’re always paying your rent on time.
How long does it take to build credit?
It’s likely not the answer you want to hear, but building a good credit history can take months or even years — but it depends on where you’re starting out.
If you’re a no-credit borrower with no credit history at all, it’s likely you have a credit score of around 500 to 600. Adding some accounts to your credit reports and making timely payments could mean reaching the 700s in a matter of months.
However, if you have poor credit from negative marks, such as multiple late payments or defaulted loans, it’ll take some time to heal. Most negative marks stop impacting your credit score after seven years, but with each passing year, the impact they have decreases. With a very poor credit score below 500, it may take a few years to get back in the green by making timely payments, keeping credit card balances low and only applying for new credit when you need it.
A perfect FICO credit score is 850. In April 2023, only 8% of Americans reported having a perfect score in our quarterly Consumer Confidence Index survey. But you don’t need a perfect credit score for it to be considered “good.”
A good credit score is considered anything above 670, according to FICO. The average credit score in the US is 714, based on data from FICO and Experian.
A credit score between 725 to 759 is considered “very good,” and anything above 760 is considered “excellent.” If you have a credit score below 670, some lenders may consider you a poor credit borrower, making it tough to qualify for new credit or get the best interest rates in the market.
How to build a perfect credit score
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What is the Finder Score?
The Finder Score crunches over 300 checking accounts from hundreds of financial institutions. It takes into account the product's monthly fees, overdraft fees, opening deposit, customer support options, ATM network and features — this gives you a simple score out of 10.
To provide a Score, Finder’s banking experts analyze hundreds of checking accounts against what we consider is the best option: no monthly fees, no overdraft fees, a large ATM network of 50,000 or more, additional features outside of typical banking services, and the optional perk of earning interest. Accounts that are nearly free to maintain and use are scored the highest, while accounts with costly fees and few features are scored the lowest.
A combined two-thirds (60%) say they’ve checked the last month, with 14% of those doing so in the last 24 hours.
Bottom line
Just because you have less-than-ideal credit doesn’t mean you’re out of the running for new credit when you need it. If you don’t have time for credit repair and need to borrow soon, a variety of borrowing products cater to low credit scores.
Bethany Hickey is the banking editor and personal finance expert at Finder, specializing in banking, lending, insurance, and crypto.
Bethany’s expertise in personal finance has garnered recognition from esteemed media outlets, such as Nasdaq, MSN, Yahoo Finance, GOBankingRates, SuperMoney, AOL and Newsweek. Her articles offer practical financial strategies to Americans, empowering them to make decisions that meet their financial goals. Her past work includes articles on generational spending and saving habits, lending, budgeting and managing debt.
Before joining Finder, she was a content manager where she wrote hundreds of articles and news pieces on auto financing and credit repair for CarsDirect, Auto Credit Express and The Car Connection, among others.
Bethany holds a BA in English from the University of Michigan-Flint, and was poetry editor for the university’s Qua Literary and Fine Arts Magazine. See full bio
Bethany's expertise
Bethany has written 451 Finder guides across topics including:
StellarFi is a credit reporting app that helps you build credit with bills you already pay. No credit checks are required and you won’t be charged interest.
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