How to Build Your Credit Score From Scratch
If you've never had a credit card or a loan, you probably don't have a credit score yet. That's normal, and it isn't the same as having bad credit. It just means the credit bureaus don't have enough information about you.
Credit starts to matter sooner than most people expect. Landlords often check it before approving an apartment. Car loans, some phone plans, and eventually a mortgage depend on it. Some utility companies look at it too, and may ask for a deposit if you don't have much history.
This guide covers what your score is based on, the simplest ways to start building it, and the habits that help it grow.
What a credit score is based on
A credit score is a number, usually between 300 and 850, that estimates how likely you are to pay back what you borrow. It's calculated from your credit reports, which are records kept by three companies called credit bureaus: Equifax, Experian, and TransUnion.
The most widely used score is the FICO score. According to myFICO, it's built from five main factors:
- Payment history, about 35%: whether you pay on time.
- Amounts owed, about 30%: how much of your available credit you're using.
- Length of credit history, about 15%: how long your accounts have been open.
- New credit, about 10%: how many accounts you've opened or applied for recently.
- Credit mix, about 10%: the types of credit you have, such as cards and loans.
The first two make up most of the score. When you're starting out, paying on time and keeping your balances low will do most of the work.
Ways to start building credit
To build a score, you need at least one account that reports to the credit bureaus. These are the most common starting points.
A starter or student credit card
If you have some income, a card made for people with little or no credit history is the simplest option. Look for one with no annual fee. A low credit limit is fine at the beginning. Our guide to choosing your first credit card explains what to compare.
A secured credit card
If you aren't approved for a regular card, a secured card is the usual next step. You put down a deposit, often a few hundred dollars, and that deposit usually becomes your credit limit. You use it like a normal card, and it reports to the bureaus the same way.
Many issuers review your account after several months of on-time payments and may move you to a regular card and return your deposit. Choose one with no annual fee, and check that it reports to all three bureaus.
Becoming an authorized user
A parent, spouse, or someone else you trust can add you to their credit card as an authorized user. That card's history may then show up on your credit report too. You don't have to use the card for it to count.
This only helps if the main cardholder pays on time and keeps the balance low. Skip it if they tend to pay late or carry a large balance, because that history can show up on your report as well.
A credit-builder loan
Some credit unions and online lenders offer small loans designed for building credit. Instead of getting the money up front, the lender holds it in an account while you make monthly payments. When you finish, you get the money, and your on-time payments are reported along the way.
This can work well if you'd rather not have a credit card yet. Check the interest and any fees first so you know what it costs.
Which option to choose
For most people, a no-annual-fee starter card or a secured card is the best place to start. It's simple, every on-time payment adds to your history, and you'll likely want a card eventually anyway.
If someone close to you has a long, clean credit history, being added as an authorized user can give you a head start alongside your own card. A credit-builder loan makes sense if you don't want a card right now or would like a loan on your record too.
Pay on time every month
Payment history is the biggest part of your score, so this is the habit to protect. Set up autopay for at least the minimum payment as soon as you open the account. Then pay the full statement balance each month, either by hand or by setting autopay to the full balance.
Paying in full also means you don't pay interest. A payment that is 30 or more days late can be reported to the credit bureaus and can stay on your report for up to seven years, so it's worth making sure that never happens by accident.
Keep your balances low
The second-biggest factor is how much of your credit limit you're using, called your credit utilization. If your limit is $500 and your statement shows $400, you're using 80%, even if you pay it all off a few days later.
A common guideline is to stay under 30% of your limit, and lower is generally better. On a $500 limit, that means keeping your statement balance under $150. Putting one small recurring bill on the card, like your phone bill, and paying it off each month is usually enough.
If you need to make a bigger purchase, you can pay part of it before the statement closes so a lower balance gets reported.
Open new accounts slowly
When you apply for credit, the lender usually does a hard inquiry, which can lower your score slightly for a while. Opening several accounts in a short time also lowers the average age of your accounts. When you're new to credit, one or two accounts are plenty.
Keep your first card open after you move on to a better one, especially if it has no annual fee. Its age helps your credit history over time.
Building a score takes some patience. It generally takes about six months of account activity before a FICO score can be calculated. After a year or two of on-time payments and low balances, you'll usually be in a much stronger position for things like renting an apartment or financing a car.
Check your credit for free
You can get free copies of your credit reports from all three bureaus at AnnualCreditReport.com, the official site authorized by federal law. Once you've had an account for a few months, look them over to make sure everything is accurate and that there's nothing listed you didn't open. If you find a mistake, you can dispute it directly with the bureau.
Your credit report doesn't include your score. Many banks and card issuers show you a free score in their app, and checking your own score does not lower it.
A simple plan to get started
- Open one no-annual-fee starter card or secured card.
- Put one small recurring bill on it.
- Set up autopay and pay the full balance each month.
- Keep your statement balance well under 30% of your limit.
- Check your credit reports a few times a year at AnnualCreditReport.com.
That covers most of what building credit involves. If you only do one thing, set up autopay the day you open the account.
