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What is a great credit rating
How to build credit from scratch
In a Nutshell
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For many people, building credit from scratch is like the chicken-and-egg conundrum: You need good credit to qualify for many of the best credit cards, but how can you establish credit without a credit card?
If you’re trying to figure out how to build credit, we’re here to help.
If you don’t feel comfortable applying for a credit card just yet, keep in mind there are plenty of other ways to build credit without a credit card. Here are the four credit-building options covered in this article.
1. How to build credit with a credit card
We recommend starting with one of these entry-level credit cards, which generally don’t require a long or robust credit history for approval. Here’s a breakdown of the various types you may want to consider:
- Secured credit cards require a cash deposit that serves as collateral if you miss a payment. If you can, find a card that doesn’t charge an annual fee. And make sure the credit card company reports to all three major credit bureaus, which can help you build or rebuild credit with responsible use.ss
- Student credit cards give students and young cardholders the chance to build credit — and they may even come with promotional offers and rewards. One potential drawback is that they typically have lower credit limits and higher interest rates.
- Store credit cards not only help consumers save money at their favorite stores, but they may also give those with little or no credit a chance to prove they can handle money responsibly. Beware of the high interest rates these cards may charge if you carry a balance.
At a glance: Some of our favorite cards for building or rebuilding credit
From our partner
Capital One® Secured Mastercard®
Purchase Intro APR
Balance Transfer Intro APR
Additional Rates and Fees
- No annual fee, and all the credit building benefits with responsible card use
- Unlike a prepaid card, it builds credit when used responsibly, with regular reporting to the 3 major credit bureaus
- You will get an initial $200 credit line after making a security deposit of $49, $99, or $200, determined based on your creditworthiness
- Get access to a higher credit line after making your first 5 monthly payments on time with no additional deposit needed
- Easily manage your account 24/7 with online access, by phone or using our mobile app
- It’s a credit card accepted at millions of locations worldwide
* See the online provider’s credit card application for details about terms and conditions. Reasonable efforts are made to maintain accurate information. However, all credit card information is presented without warranty. When you click on the “Apply Now” button, you can review the credit card terms and conditions on the provider’s website.
From our partner
Citi ThankYou® Preferred Card for College Students
2. How to build credit with help from mom and dad
Your parents might be willing to lend you a hand by making you an authorized user on one of their credit cards, or co-signing a loan with you. Of course, a close friend or another family member may also be able to help.
If your parents make you an authorized user on their rewards credit card, you may both benefit. You’ll have a chance to build your credit, while mom and dad may rack up points or cash back on every dollar you spend.
The downside (for your parents, at least) is that they’ll be responsible for repaying the money you spend if you don’t. And if that causes them to miss a payment or rack up a lot of debt, it could hurt both of your credit scores.
Keep in mind, if you’re under 21, according to the Credit Card Accountability Responsibility and Disclosure (CARD) Act of 2009, you either have an adult co-signer or show that you make enough money on your own to repay any money you spend on your credit cards.
3. How to build credit without a credit card
College graduates who make on-time student loan payments may boost their credit. But keep in mind, late payments may have an adverse effect on your scores. Consider setting up automatic payments, so you don’t forget.
One more thing to watch out for: Taking out student loans may place more pressure on your overall finances. The more you owe on a student loan, the less money you’ll have on hand to repay other lenders.
This is one way even high school students may be able to jumpstart this credit history. Of course, it doesn’t make sense to buy a car solely for the sake of building your credit, so make sure it’s a necessary purchase before asking the dealer to hand over those keys.
In some cases, renters may also build credit by making on-time payments. If your landlord doesn’t report your positive payment history to the credit reporting agencies, check out services like RentTrack and PayYourRent.
Cellphone payments and “alternative data”
Some lenders are looking at using alternative forms of data when assessing your creditworthiness (such as your rent, cable TV and cellphone payments). The CFPB is now looking at the risks and benefits of using alternative data sources in making lending decisions.
4. How to build credit responsibly
- Don’t pay interest.Contrary to popular belief, you don’t need to carry a balance to build credit. So consider paying off your entire balance each month to avoid interest charges.
- Don’t miss a payment.Late payments can stay on your credit reports for years and wreck your credit. So do your best to make each payment on time, even if you can only afford the minimum payment.
- Don’t spend too much. While you might be excited about breaking in your new credit card, try not to use more than 30 percent of your available credit. That means if you have a $1,000 credit limit, try not to spend more than $300. Keeping your credit utilization rate low can help improve your overall credit health.
It’s important to remember you’re not alone. According to the Consumer Financial Protection Bureau (CFPB), an estimated 45 million Americans may not have credit scores. That’s a huge number, and it includes a variety of individual cases. Some people simply have no credit history, while others may have a credit history that’s gone stale or isn’t yet sufficient to produce a score under most scoring models.
Still don’t know where to start? Sign up for an account with Credit Karma and get your free VantageScore 3.0 credit scores from two major credit bureaus. It’s always free and there’s no credit card required, ever.
Credit One Bank® Platinum Visa® with Cash Back Rewards.
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