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How To Build Credit The Right Way

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Wondering how to build credit from scratch? Worried you haven’t started building credit yet? Here is what you need to know to build good credit for the first time.

How do you get a mortgage, car loan, or apartment lease? By presenting the bank or landlord with a good credit history that demonstrates you’ve been financially responsible in the past.

But, how are you supposed to get approved for a loan or credit card if you’ve never had one before?

It’s the ultimate catch-22: No credit card? No credit history. No credit history? No credit card.

If you’re panicking because you don’t know how you’ll get that student or auto loan you need because you don’t have prior credit history, relax: It can be done.

Everybody starts life without credit. We’ll walk you through how to good build good credit fast—even if you’re starting from scratch.

Table of contents

    Get help from a family member who has good credit

    A willing parent or significant other who uses credit responsibly can help kick-start your credit score by either cosigning a loan or adding you as an authorized user on a credit card account.

    Take out a loan with a co-signer

    The easiest way to build credit for the first time is to open a loan account with a co-signer who already has good credit. A co-signer is simply someone who agrees to be responsible for the loan if you stop paying your bills for any reason.

    In most cases, a bank will approve a loan for somebody with no credit history if there is a creditworthy co-signer on the application. In order for this to work, you need somebody who:

    • Trusts you enough to put their credit rating on the line for your loan
    • Has good credit themselves

    If someone co-signs a loan for you and you don’t make timely payments, your co-signer’s credit will suffer along with your own. If you default on the loan—meaning you stop paying altogether— your co-signer is legally responsible to repay the debt. This situation has ruined plenty of relationships. Proceed carefully.

    Another downside to this method is that it requires taking out a loan. That’s fine if you need a loan anyway—for example, you’re buying a car. But you don’t have to pay interest to build credit.

    Become an authorized user on someone else’s account

    You won’t apply for the card together, but you can ask somebody to add you to their credit card account as an authorized user. Ensure that you’re being added to the account as a fully authorized user, as some companies will issue extra cards in different names but only tie the account to one owner.

    One way to check this: Do they ask for your social security number when adding an authorized user? If not, this trick won’t help you build credit.

    After you become an authorized user on a parent’s or somebody else’s credit card, you don’t even have to use the card—as long as they keep paying their bills on time, you will start to build credit. (But it goes both ways, if they stop paying, this could actually hurt your credit! Proceed with caution.)

    Get a starter credit card

    A starter credit card is designed for people new to credit. Unlike many mainstream credit cards, starter credit cards often have:

    • Lower credit limits ($300-$500 is a common start)
    • An annual fee
    • Higher interest rates
    • Limited or no rewards

    Some starter credit cards are also secured credit cards. What this means is that you need to have money in a bank account equivalent to your credit line. So if you want to spend $1,000 on your credit card, you need $1,000 in the bank to cover that. And you make monthly payments like usual—it’s not a debit card, where every purchase you make is deducted from your balance.

    Although similar to a debit card, secured credit cards work slightly differently and, unlike debit cards, report your payments to the credit bureaus so you can build credit.

    If you’re a full-time college student, try starting with a student credit card. These cards are designed to approve students and you can upgrade them when you graduate. Many don’t have the lowest APRs or best rewards out there, but you’ll have a good shot of getting approved and can start building better credit.

    If you have some credit history, but not a lot, certain Capital One credit cards can be among the easiest cards to get approved for.

    Just because two cards may be better than one, I would stop there for now. As the result of a new inquiry on your credit report, your score might go down after you apply. But in the long run it should go up.

    1. Capital One Platinum Card

    If you have some credit—even if it’s not great—and you aren’t a college student, check out the Capital One Platinum Card. This card is designed for people with average or limited credit. It doesn’t have an annual fee or rewards, but after a year or so of responsible use you should be able to upgrade it to a no-fee rewards card.

    Capital One(R) Platinum Credit Card

    Credit Needed: Average/Fair/Limited
    • Pay no annual fee
    • Get access to a higher credit line after making your first 5 monthly payments on time
    • Fraud coverage if your card is lost or stolen
    Intro APR
    Intro Term
    Intro APR
    Balance Transfers
    Intro Term
    Balance Transfers
    Regular APRAnnual Fee
    N/AN/AN/AN/A26.96% (Variable)$0

    2. Capital One QuicksilverOne Card

    The QuicksilverOne Card is designed for consumers with fair or average credit but offers a great rewards program. Unlimited 1.5 percent cash back on all purchases. It has a $39 annual fee. This card has the same rewards program as the Quicksilver card which is designed for consumers with very good credit. You can compare the two versions, Quicksilver and QuicksilverOne here.

    Capital One(R) QuicksilverOne(R) Cash Rewards Credit Cardfwuwescycywawtfbcdxrysa

    Credit Needed: Average/Fair/Limited
    • Earn unlimited 1.5% cash back on every purchase, every day
    • Earn cash rewards without signing up for rotating categories
    • Get access to a higher credit line after making your first 5 monthly payments on time
    Intro APR
    Intro Term
    Intro APR
    Balance Transfers
    Intro Term
    Balance Transfers
    Regular APRAnnual Fee
    N/AN/AN/AN/A26.96% (Variable)$39

    3. Discover it(R) Secured

    Finally, if you have no credit history or bad credit, you’ll have to start with a secured credit card. Perhaps the best secured option going is the Discover it(R) Secured. This card has no annual fee and a generous cash back rewards program. Best of all, after 8 months, you’ll qualify for automatic account reviews to see if your account can be upgraded to an unsecured card. Read our full review here.

    Discover it® Secured

    Credit Needed: Please refer to issuer's website
    • No Annual Fee, earn cash back, and build your credit with responsible use.
    • It’s a real credit card. You can build a credit history with the three major credit bureaus. Generally, debit and prepaid cards can't help you build a credit history.
    • Establish your credit line by providing a refundable security deposit from $200-$2500 after being approved. Bank information must be provided when submitting your deposit.
    Intro APR
    Intro Term
    Intro APR
    Balance Transfers
    Intro Term
    Balance Transfers
    Regular APRAnnual Fee
    N/AN/A10.99%6 months25.24% Variable$0

    4. Store credit cards

    Many people’s first credit card is a retail or store credit card. You know, the ones every sales clerk at the mall asks you to apply for when you check out. You’ll get 20 percent off today’s purchase!

    Store credit cards have high interest rates and are terrible if you think you’ll use them to go on a shopping spree you can’t afford. But store credit cards typically have lower credit limits than major credit cards. That means stores are willing to approve applicants with less credit history.

    If you get a store credit card, make a small purchase that you can immediately pay off. Do this every few months. Never buy more than you can afford to repay and never forget to pay the bill!

    As long as you do this, it really doesn’t matter which store card you get, because you won’t be paying interest. But some store cards are better than others because they give you ongoing discounts—not just on the day you sign up. The Target Red Card, for example, gives you five percent back on every purchase—a much better return than even the best major rewards cards, most of which max out at a two percent reward rate.

    Apply for a credit-builder loan

    Some lenders offer credit-builder loans—small personal loans designed for anyone new to credit. They’ll help you build credit, but come at a cost.

    This is a new one, but the lender Upstart will make loans to borrowers without credit histories if they are college graduates and have jobs.

    If you take out a small personal loan and repay it on a timely fashion, this will build your credit. Self Lender is a fairly unique program that allows you to take out a loan and re-pay yourself. Loans range from $500 to $1,700 and the term of the loan is either one year or two years. The idea behind Self Lender is straightforward, you open a loan, repay yourself and show the credit bureaus you are responsible with credit. This is likely to increase your credit score, all while keep the fees and interest costs low.

    The costs to use Self Lender are either a $9 or $15 application fee and an interest rate between 12% and 16% fixed. This means that for example, if you take out a $525 loan w/ 12 month repayment terms, you’ll pay back a total of ~$591 on the loan (essentially losing $66). Not a bad price for an improved credit score and certainly less expensive than a high interest line of credit.

    What about student loans?

    If you took out student loans for college, you’re in luck. While federal student loans are available to anyone, regardless of credit score, they still help you build credit as you pay them off.

    One or two student loans, however, may not be enough to build credit quickly. If you can, you may want to add one or two of these other credit-building techniques to get your credit score higher in a shorter number of years.

    Frequently asked questions about building credit

    Why do I need to build credit?

    If you ever hope to get a home loan or auto loan, you’ll need good credit. Many landlords even require good credit to rent an apartment.

    It’s great if you want to stay far away from debt today—but someday you’ll find it’s better to have the credit and not need it than to need it and not have it.

    I know a bunch of people who went through most of their twenties without credit. They had no student loans, no credit cards, not even a car loan. They paid in cash and that worked for them. On the one hand, they never had to worry about getting in over their head with debt. But as they got older and started to think about buying a first home (or they just wanted a credit card to take on a business trip), they were years behind others who started building credit in their early twenties—or even younger.

    Your credit history may also be used for other things like

    • Calculating car insurance premiums
    • Apartment rental applications
    • Employment screening

    I’m not saying this stuff to scare you. Personally I think it’s crappy that some people get passed over for jobs because they paid a couple of bills late. (And some states are going so far as to ban the practice.) But such is the world we live in.

    How long does it take to build good credit?

    You can build an average or good credit score in just a year or two. But it can take up to seven years to build an excellent credit score of 750 or higher.

    It’s possible to build good credit in just a few years, but it requires opening at least a few accounts of each type (loans and credit cards) and being absolutely meticulous about making timely payments. The shorter your credit history, the more a single late payment will set you back.

    Most consumers with credit scores in the top 10th percentile (800 or better) have at least 10 years of credit history. That’s because the average age of your credit accounts is one scoring factor. The longer your accounts have been open and in good standing, the more creditworthy you appear to be.

    So even if you don’t need credit today, if you want to get the best rate on a mortgage in 10 years, you should start to build credit now.

    How can I build credit fast?

    You can build credit more quickly by starting with one account, then gradually adding new credit cards or other accounts every six months.

    Again, it will take about two years to build a “decent” credit score. But if you add new accounts—and pay them all on time—your score could be quite good in the same amount of time.

    If you’re curious, here’s a big guide to what credit scores are, what they mean, etc.

    The first step to building credit is to open an account that reports your payment history to the credit bureaus.

    There are three credit bureaus—Equifax, Experian, and TransUnion. The bureaus maintain databases of everybody’s credit history and package this information as reports and scores to sell to banks, landlords, employers, etc.

    For the most part they collect similar information, although each may track this information differently, and there may be discrepancies on your credit history with each. This is why it’s important to check all three of your credit reports at least once a year.

    Examples of accounts that do report to credit bureaus include:

    • Major credit cards (Amex, Discover, Mastercard, Visa)
    • Store credit cards (Target, GAP, Kohl’s, etc.)
    • Installment loan accounts (mortgage, auto or student)

    Examples of accounts that do not report to credit bureaus include:

    • Debit cards (regular checking and prepaid)
    • Utility and phone bills (electric, water, cable, cell phones)
    • Rent payments—unless you or your landlord subscribe to a rent-reporting service

    So even if you have a checking account, an apartment and a cell phone, you may not have a credit history.

    Why does having more credit help my credit score?

    Since managing multiple accounts responsibly is more difficult than managing just one or two, the credit scoring system rewards consumers who regularly pay multiple accounts.

    Credit scores are funny. I know it seems counter-intuitive that someone with more credit cards is a better risk than someone with just one. But it’s true—to a point.

    A good credit score is earned by managing credit well. Until you do that, the credit bureaus don’t have any way to say what kind of credit risk you will be. It’s a lot like safe driving. Insurance companies often give discounts to drivers who haven’t had a ticket or accident in a couple of years. But when you first start driving, you can’t get that discount because there’s no data to indicate whether you’re a safe driver. So showing you can manage a few different credit accounts is a good thing.

    The second reason this will help is for what’s called your debt utilization ratio. This is the percentage of the credit limits on all of your credit cards that you’ve currently borrowed against. For example, if you have two credit cards with $500 limits, you have a total credit limit of $1,000. If you have a $600 balance between the two cards, your utilization ratio is 60 percent—you’ve used 60 percent of your total credit limit.

    With utilization ratios, lower is better, and a high ratio will decrease your credit score.

    So there are a few ways to improve this number:

    1. Only use a small percentage of your credit line.
    2. Pay your card balances down before the closing of the statement cycle. (This will reduce the month-end balance that is used to calculate this number.)
    3. Increase your available credit.

    If suddenly you get a new credit card with a $1,000 limit, now your total available credit is $2,000 and your utilization ratio becomes 30 percent instead of 60, which is better for your credit score.

    Do I have to go into debt to build credit?

    No! And if you can help it, don’t go into debt just to build credit.

    It’s a common myth that in order to build credit you need to carry a balance on a credit card. That’s not true. The credit bureaus reward you for using a credit card and paying it off—whether you pay it in full each month or not.

    And borrowing too much—especially in the beginning—will likely hurt your credit score, not help it.

    Unfortunately, there is some truth to the fact that credit bureaus reward consumers who have both credit card (revolving) accounts and loans with fixed monthly payments. But if you don’t need a loan, you don’t have to take one out and pay interest just to build credit.

    Can I build credit by paying my rent on time?

    In some cases, yes.

    There are several companies—Rental Kharma, Rent Reporters, and RentTrack, for example—that will report your rent payments to one or more of the credit bureaus.

    Unless your landlord or property manager already works with these companies, you’ll need to pay a monthly fee (Rental Kharma charges tenants $9.95 a month). Your landlord will also need to validate your rental payments for the system to work.

    Also know that most utility bills do not count towards your credit, unless you fail to pay them.

    What do I do once I get my first credit card?

    So you’ve got a credit card—congrats! Now the only things you should do are: Use the card occasionally and pay the bill on time every month.

    Ensuring consistent timely payments is the most important part of building credit. Missing your payment just once can set you back a year or two. But as long as you use the credit card some and make regular payments, you’ll start to build credit.

    From a financial standpoint, only charge to the card small amounts that you can pay IN FULL at the end of every month. Treating your new credit line like “free money” and then only paying the minimum balance is asking for a big headache when you realize you owe hundreds or thousands at a high interest rate. I know because I made that mistake. Don’t do it! Here’s more on how to use a credit card responsibly.


    It’s the catch-22 of personal finance: You’ve got to have good credit to get a credit card, but you can’t build credit unless you’ve got—oh right, a credit card. But there are ways for someone just starting out to build credit. Become an authorized user, apply for a starter credit card, or take out a credit-builder loan.

    Regardless of the route you take to good credit, remember that the most important thing is making timely payments, whether on a secured card or a credit-builder loan.

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    About David Weliver

    David Weliver is the founding editor of Money Under 36. He's a cited authority on personal finance and the unique money issues we face during our first two decades as adults. He lives in Maine with his wife and two children.


    We invite readers to respond with questions or comments. Comments may be held for moderation and will be published according to our comment policy. Comments are the opinions of their authors; they do not represent the views or opinions of Money Under 36.

    1. Russell says:

      Great advice for the student cards. It’s best to start building credit as soon as possible, especially for lower rates for mortgages.

    2. Kayla @ Red Debted Stepchild says:

      Great tips for someone with no idea where to start! I did get my first card through capital one and it had a very low limit, which is good because otherwise I might have racked up even more debt than what I currently trying to dig my way out of.

    3. Matt says:

      I like this, I have just started making a change with my own personal finanace (trying to get the girlfriend to do the same is another matter – I have read the article about joint accounts ;))
      I have just got authorised for a credit card with lb1500.00 worth of credit with a monthly full repayment set up. This should be a good start for me as long as I can manage it.

    4. shelby says:

      Great ideas. I think saving for a deductible to get a credit card is best. Use it gradually

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