Building credit is a bit of a conundrum. To apply for most forms of credit, you need a credit history. But you can’t build a credit history without credit. So, how are you supposed to get started? And how long does it take for you to build a healthy credit score?
The good news is that there are a few different paths you can take to build your credit score. And, while no one path will get you there overnight, knowing what to do and how to do it can set you on the path to building a successful credit history and a credit score that you’ll be proud of.
Quick Answer: How Do You Build Your Credit History if You Don’t Have Credit?
To build credit from scratch, you generally need an account that reports your activity to one or more of the major credit bureaus. You might start with a secured credit card, a credit builder loan , or by becoming an authorized user on someone else’s credit card. From there, making payments on time and keeping credit card balances low can help you establish a positive credit history. Just remember that building credit takes time. No single approach can promise a specific credit score or timeline.
What Does It Mean to Have No Credit History?
If you have no credit history, it’s most likely because you have never applied for a credit product before. Credit products include things like credit cards, student loans, auto loans, personal loans, etc.
While some people prefer credit invisibility, most people want to build a credit profile to give them better chances of acquiring things that they desire throughout their lives. For example, the majority of people in the U.S. want the ability to get a secondary education, buy a car, buy a home, etc. And, unless you have enough cash in the bank, most of these things aren’t achievable without credit.
And, once you have applied for a credit product, such as your first credit card, or a student loan, your credit history starts to build.
How Long Does it Take to Get Your First Credit Score?
Before we answer how long it takes to build a credit score, let’s align on what a credit score is in the first place. Currently, the FICO score is the most common credit scoring system in the U.S. However, VantageScore is also used. Both scoring methodologies take a similar approach, providing consumers with a score between 300 and 850 and giving lenders and creditors insight into creditworthiness. The higher the score, the more likely that a lender or creditor will be to issue you credit. The lower your score, the more difficult it might be to obtain credit, and if you are approved, it might mean less desirable terms such as higher monthly payments, higher interest rates, and shorter borrowing terms.
That said, once you apply for a credit card or loan, it takes some time for you to get that first credit score. FICO requires you to have one or more accounts open and active for at least six months before a score will be generated. VantageScore will generate a score as soon as the first activity is reported to one of the three major credit bureaus (Experian, Equifax, or TransUnion).
5 Ways to Start Building Credit from Scratch
Everyone needs to start somewhere when building credit, but not everyone knows which path to take. Here, you’ll find five different paths you can take to not only get your first credit score, but to develop healthy credit habits.
1. Consider a Secured Credit Card
A secured credit card requires you to make a cash deposit, which typically determines your credit limit. But that deposit does not pay your monthly bill. You still need to repay whatever you charge to the card.
Before applying, do a bit of due diligence. Look into whether or not the issuer reports account activity to Experian, Equifax, and TransUnion. And, if you can, do everything in your power to pay your statement balance in full each month. This can help you establish a record of on-time payments while avoiding interest on purchases, depending on your card agreement.
2. Look Into a Credit Builder Loan
A credit builder loan offers another approach. If you prefer predictable monthly payments, this might be a wise choice for you. Instead of receiving the borrowed money upfront, the lender generally holds it in an account while you make payments over a set period. Those payments may include principal, interest, and applicable fees.
If the lender reports your activity to the credit bureaus, the account can help you establish payment history. Before choosing one, compare costs, reporting practices, and repayment terms. You can also read our guide comparing a credit builder loan vs. a secured credit card.
3. Become an Authorized User
You may also be able to start establishing credit by becoming an authorized user on someone else’s credit card. The primary cardholder adds you to the account, but you are not responsible for the debt in the same way the primary cardholder is.
If the issuer reports authorized-user activity to the credit bureaus, the account may become part of your credit history. Choose this approach carefully since the primary cardholder’s account management can matter. Reporting policies and how scoring models treat authorized-user accounts can vary.
4. See Whether Your Regular Bills Can Be Reported
Rent, utilities, phone bills, and other recurring expenses generally do not appear automatically on your credit reports. However, some programs can report eligible payments. Experian Boost, for example, can add certain rent, utility, phone, insurance, and other payments to your Experian credit file.
Credit Spark can report eligible bill payments to TransUnion. These programs do not affect every credit report or scoring model, so check how a service reports your payments and whether those payments will be considered by the score a lender uses.
5. Consider a Retail Credit Card
A retail credit card can also give you an opportunity to establish revolving credit. Stores such as Target, Kohl’s, Old Navy, and Amazon offer their own credit cards, although qualifying is never certain.
Before applying, review the following:
- Annual percentage rate
- Fees
- Other terms
Retail cards can carry high interest rates (sometimes as high as 30% or more), so a discount at checkout should not be your only reason for opening one. Also, avoid applying for several cards within a short period since multiple applications can result in hard inquiries on your credit reports.
What Matters Most Once You Have Credit
Building a credit history isn’t as simple as applying for credit and getting approved. Anyone with a credit product has a responsibility to understand the terms and conditions that come with it and to follow through on the related obligations. At the top of that list is making your payments on time each month. Simply put, when you apply for credit, you agree to make at least your minimum monthly payment on time each month, and pay off the total balance by the defined date (for a loan) or within a reasonable period of time (for a credit card). If you don’t feel confident you can make your monthly payments, it is best not to apply and to look for alternatives to get the money you need (such as borrowing from a family member or friend).
To summarize, here are some best practices to put into practice any time you take on new credit:
- Make every payment on time. Even one late payment can hurt the credit history you are trying to build.
- Keep credit card balances low. Using a smaller portion of your available credit can help keep your credit utilization in check.
- Avoid taking on more debt than you can manage. New credit should fit comfortably within your monthly budget.
- Review your statements each month. Watch for unexpected charges, fees, and changes to your account.
- Limit new credit applications. Applying for several accounts within a short period can result in multiple hard inquiries on your credit reports.
- Review your credit reports periodically. Check that your accounts and payment information are being reported accurately.
Common Mistakes to Avoid When Building Credit
Taking on credit comes with great responsibility. Unfortunately, it’s estimated that about 4.7% of outstanding debt in the U.S. is currently in some stage of delinquency. This means that those borrowers responsible for that debt have been unable to fulfill the terms and conditions of their credit or loan agreement.
Thankfully, there are some mistakes that you can avoid that can help make sure you don’t fall into delinquency, too.
- Don’t miss your payment due dates. Consider setting reminders or automatic payments so your bills are paid on time.
- Don’t borrow more than you can afford to repay. Before taking on debt, make sure the payments fit within your budget.
- Don’t max out your credit cards. High balances can increase your credit utilization and affect your credit score.
- Don’t apply for several accounts at once. Multiple applications can result in several hard inquiries within a short period.
- Don’t carry a balance just to build credit. You do not need to pay interest to establish a positive credit history.
- Don’t ignore financial trouble. If you think you may miss a payment, contact your creditor to discuss available options. You may also want to reach out to a credit counselor for guidance.
Building Credit Is a Long-Term Process
Generally speaking, assume it will take about six months to generate your first credit score after you have applied for and been approved for credit. And, know that using your credit responsibly will help pay itself forward in helping you achieve a credit score that you can be proud of.
By following the tips we suggested and avoiding common mistakes when it comes to credit, you’ll quickly find yourself on the path to a good or better credit score.
Frequently Asked Questions
Can you have a credit score if you have never borrowed money?
You generally won’t have a credit score if there isn’t enough information in your credit file to calculate one. However, borrowing money isn’t the only way to establish credit. Becoming an authorized user on a credit card, for example, may help you establish credit history if the account activity is reported.
What credit score do you start with?
You don’t start with a predetermined credit score. Your first score is calculated from the information reported in your credit file. This means you don’t automatically begin at 300, 850, or any other specific number.
Does a debit card build credit?
Using a traditional debit card does not typically build credit because you are spending money from your bank account rather than borrowing money. Debit card purchases and payments generally aren’t reported to the major credit bureaus as credit activity.
Can paying rent help build credit?
Paying rent may help you build credit if those payments are reported to a credit bureau and considered by the credit scoring model being used. Rent payments generally do not appear on your credit reports automatically, so you may need to use an eligible rent-reporting program.
Do you need to carry a credit card balance to build credit?
You do not need to carry a credit card balance or pay interest to build credit. Using your card and paying the statement balance in full by the due date can establish payment activity while helping you avoid interest on purchases, depending on your card terms.
