How to Build Credit and Establish Credit When You Have None

Building credit can seem intimidating, especially if you’re starting from scratch. However, there are plenty of strategies you can use to build your credit score and establish a strong credit history over time. With some diligence and smart financial habits, you’ll be well on your way.

Get a Secured Credit Card

One of the best ways to build credit is to get a secured credit card. This type of card requires you to make a refundable security deposit, which becomes your credit limit. Making on-time payments shows potential lenders that you can handle credit responsibly.

After about a year of consistent payments, you can request to upgrade to an unsecured card and get your deposit back. Just be sure to choose a card with no annual fee to avoid unnecessary costs. NerdWallet has recommendations for the best secured cards.

Become an Authorized User

Ask a family member or friend with good credit to add you as an authorized user on their credit card. As an authorized user, you get the benefit of their account history and on-time payments being added to your credit report, which can give your score a boost. Just be sure they actually make their payments on time.

Apply for a Credit Builder Loan

Credit builder loans allow you to demonstrate responsible credit behavior. You receive the full loan amount upfront, which gets deposited into a savings account. You then make monthly payments, and once the loan is paid off, you get access to the money that was deposited.

Because on-time payments get reported to the credit bureaus, credit builder loans can help establish your credit history. NerdWallet recommends several credit builder loan options to consider.

Use a Credit-Building Service

Companies like Self and Experian Boost offer services designed specifically for building credit. For a monthly fee, they report your monthly bill payments like rent, utilities, and streaming services to the credit bureaus. This helps demonstrate you can pay recurring bills on time.

Check for Errors on Your Credit Report

Errors on your credit report could be unfairly dragging down your score. You’re entitled to free copies of your reports annually from each of the three major credit bureaus. Review them closely and dispute any inaccuracies you find.

Getting errors corrected can boost your score since you’ll be evaluated based on accurate information. Use AnnualCreditReport.com to obtain your free reports.

Avoid Debt Traps

It can be tempting to rely on payday loans, pawn shops, or other predatory lenders when you need cash quickly or have poor credit. But their sky-high fees and interest rates can trap you in an endless debt cycle. Find more affordable alternatives like borrowing from family or friends.

Increase Your Credit Limit

A higher credit limit with a low balance can improve your credit utilization ratio, which measures how much of your available credit you’re using. Ask your card issuer to increase your limit after several months of on-time payments. Just be sure to keep your spending in check.

Mix Up Your Credit Types

Having different types of credit—like installment loans and credit cards—can improve your credit mix. Applying for an auto loan or personal loan you can manage alongside your credit cards shows you can handle diverse credit types.

Pay Down Balances

Carrying high balances can hurt your credit score. Try to pay off as much as you can each month beyond just the minimum payment. Getting balances below 30% of your credit limit can give your score a nice boost.

Dispute Any Late Payments

If you have any late payments incorrectly reported on your credit report, dispute them. Providing documentation can get errors removed so those mistakes don’t drag down your score.

Become an Account Holder

Being a joint account holder—like on a spouse or partner’s credit card—can help establish a credit history. Just be sure they make on-time payments and use the card responsibly.

Avoid Too Many Inquiries

Each application for new credit results in a hard inquiry on your report, which can temporarily knock a few points off your score. Limit credit checks by only applying for accounts you really want and need.

Ask for Higher Limits

Instead of opening new accounts, ask your existing card issuers to increase your credit limit. Higher limits help keep your utilization low as long as you don’t increase spending.

Automate Payments

Set up autopay through your credit card issuer and checking account bank to ensure you never miss a payment due date. One late payment can significantly hurt your score.

Review Accounts Annually

Check your credit report each year and consider closing unused accounts with high annual fees or bad terms. But don’t close your oldest accounts, as longer credit history helps your score.

Pay Down Debt

Paying down outstanding debt improves your credit utilization ratio, as long as you don’t rack up new debt in the process. Start by paying off high-interest debts first.

Add Positive Information

Open new credit accounts sparingly and continue making on-time payments to add positive information to your credit report. This shows lenders you can handle multiple accounts responsibly.

Monitor Your Score

Keep an eye on your credit score using a free site like Credit Karma to see how your credit-building efforts are paying off over time.

Be Patient

Building credit takes diligence and patience over time. Stick to good financial habits, and your score will slowly but surely improve. Be persistent and don’t get discouraged.

By starting with a secured card, becoming an authorized user, and using credit builder tools, you can establish credit even if you’re starting from nothing. Monitor your reports, keep balances low, make payments on time, and be patient. With time and perseverance, you can build great credit.