But how do you build your credit when have no prior credit history? Figuring out how to get started might seem daunting—but building a solid credit history from scratch and having a great credit score is something anyone can do!
Here, let’s explore ways to take charge of your financial situation by building credit history and a good credit score. Plus, we’ll highlight why credit’s important—even if you think you may not need it.
4 ways to build credit with no credit history
First things first, if you’re not sure where your credit history stands, go ahead and request a free copy of your credit report from AnnualCreditReport.com, which you can do every year. Having this reference for your current credit situation will come in handy. And if there’s not much on it, these methods for establishing credit history and raising your credit score—a number between 300 to 850 that tells lenders how well you manage credit—can help.
1. Get a secured loan or credit card
If you’re ready to establish your credit, a secured credit-builder loan or credit card can help you start. Both require a small upfront deposit, which the lender uses as collateral in case you don’t make your payments. Once you close the account or the loan term ends, you can get that money back—so long as you’ve been making payments and your account is in good standing. (The terms can vary, but for many secured credit cards, for example, you get the money back within one year.)
Basically, by giving the lender money as collateral, it lowers some of the risk that they see from you not having any credit history. It helps them trust that you’ll pay back anything you borrow.
2. Become an authorized user on someone else’s account
You can become an authorized user on an account if someone close to you (like a family member) adds you to their existing account. This option is most common with credit cards. For example, if they have a travel rewards credit card, they can add you as an authorized user and you'll get the same card, but with your own name on it. This card would still be tied to your family member's account, so just remember that if you decide to use it, you're really charging that purchase to someone else's account.
This option requires very little effort from you. As long as you and that family member are responsible with the credit line and make payment on time, you can both build good credit history together. Plus, it removes the barrier of you having to open an account in just your name.
3. Use a cosigner
Getting a cosigner is another way you could try getting your first loan or card. You would take out a loan or open a credit card, and someone you trust would sign with you. By doing this, your cosigner agrees to be legally responsible for paying the debt if you don’t pay it as agreed.
Using a cosigner with good credit might get you better terms than you would otherwise be offered. But heads up: If you don’t make the payments, both your and your cosigner’s credit will be affected. Similar to being an authorized user on someone else’s account, make sure you and your cosigner understand that you’re in it together.
4. Add alternative data to your credit history
If the above options don’t seem viable to you, you still have some choices. While rent, cell phone, and utility payments aren’t usually reported to the main credit bureaus, you can sometimes ask your landlord and utility companies to do so.
Some companies, like Experian and eCredable, also allow you to link eligible bank or utility accounts. Once your accounts are linked to their service, they can evaluate your activity to find qualifying payments to report to a credit bureau to show good payment habits. (Experian’s Experian Boost program can even report your payments to streaming services.) You’re likely already paying these bills on a monthly basis—and with a little extra effort, those payments may help you build your credit history.
In late 2021, Equifax reported that it would accept buy now, pay later (BNPL) service payments to help people build stronger credit profiles.1 These services—also known as “point-of-sale financing”—include companies like Affirm, Klarna, and Afterpay. They typically involve short-term, interest-free installment payments on a variety of purchases. Be careful about spending too much with these BNPL services—but if you’ve been using them, you might already be on your way to building some credit history.
Give yourself some credit (which takes time to build)
Good credit is important, but your credit score isn’t the only metric that indicates your financial health. It’s just one piece of your financial puzzle. So, if you don’t have good credit—or any credit at all—don’t sweat it too much. It’s within your power to change your situation for the better.
“The hardest part is the first part, where you’re identifying reality accurately and then taking steps to improve your situation,” says Bright Dickson, a positive psychology expert at Truist. “Once you get over the hard part, you start to see progress toward what you want. That breeds hope, which helps you take the next step toward your goals.”
It can take three to six months just for your first credit score to be calculated, but it can take about a year to start building your credit. Just like a relationship, the more time you spend doing the right things, the more trust can be built.
Brian Ford, head of financial wellness at Truist, compares your credit history and score to a relationship:
“If you’ve done all the right things to build trust in a relationship for six months, there’s going to be some credit built up there. But what about the person that’s done all the right things for three years? There will be more trust and credit built up with that individual.”
Your credit score tells lenders how creditworthy you are. The higher your credit score, the more you’ll be able to access higher credit limits—which can help if you’re financing a big purchase or need to use credit in an emergency.
Keep in mind: The longer you have credit, the easier it will be to raise your credit score.
In general, you can also increase your credit score by:
- Making on-time payments every month on every account you have
- Using diverse types of credit—for example, a student loan, a credit card, and a car loan
- Not using too much of your available credit (for example, if you have a $5,000 credit limit on a card, keeping the balance below 20%—or $1,000—is considered good for your score because you’re maintaining a low credit utilization ratio)
To keep growing your credit, avoid common credit mistakes so you can consistently improve your score. Once you get your credit history going—as long as you keep it in good standing—it becomes easier over time to grow and maintain your credit score.
Not sure if you need credit? Here’s why you do
Having good credit allows you to borrow money from lenders so you can accomplish specific goals. Without credit, many of us would never have the cash we’d need to buy a home or even a car. Generally, the higher your credit score, the easier it will be to borrow and the less you’ll pay in interest on any loans you take out.
But credit goes beyond borrowing money. It can also factor into the premium you pay on your auto insurance, whether a landlord accepts your rental application, and even if an employer chooses to hire you.
Credit is a big deal. With poor credit, you might end up paying more over time on a loan. For example, you might get a 5% interest rate on an auto loan with poor credit, but a 3% rate with good credit. That means you could potentially pay hundreds of dollars more each month just because of your credit. And if you’re already managing a tight budget, those hundreds of dollars could be put to good use elsewhere, like an emergency savings account or retirement account.