How to build credit starting from scratch

« Return to Learn

It’s one of those chicken-or-the-egg situations: You can’t get credit if you don’t have a credit history and you can’t build a credit history without credit.

So how do you get started? Or get “restarted” if your credit has taken a hit? You need to be proactive. Here are some ways to pull it off:

  • Apply for a secured credit card. This is similar to a traditional credit card but spending is limited to the amount of money you put into an account. You make payments just like a real credit card and the financial institution reports your payment history to credit agencies. Before you know it, you’ve got a credit history. Once you’ve established a good payment history, you likely can get a traditional credit card.
  • Apply for a store or gas card. These cards generally have lower spending limits and are easier to get than a regular credit card. But as long as you pay the bills on time, you can use them to build credit.
  • Tag team building credit with your parents. It doesn’t have to be a parent, but if you can find someone with a good credit history willing to add you to their account or cosign on a loan, you can establish credit by paying off the debt on time.
  • Make the rent. Investigate whether your landlord reports rental payments to credit agencies. There are services available – some free, most for a fee – that will independently report your rental payment history. Also, find out if your utility or cellphone providers report to credit agencies.

Once you get a start, credit will come easier. Maintaining a good credit score is simple if you play by a few rules.

  • Pay your bills on time. This is where most credit histories go wrong. Consider auto-pay to avoid missing a deadline.
  • Be careful about how much credit you use. Experts say to keep your spending to 30 percent of your credit line. Getting too close to your credit line sends up a red flag that you might have trouble paying your balance.
  • Don’t take out too much credit in a short amount of time. It’s another red flag that you might be spreading yourself too thin.

Once you have a credit history, check on it regularly. The three credit reporting agencies – Equifax, Experian and Transunion – are required to provide free reports annually to consumers. You could get one every four months if you rotated your requests. It gives you a chance to see how you’re doing and to check for errors.