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• Credit building loan – Raise your credit score and expand your credit file can lead to more card and loan offers.
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It may seem difficult to start building credit when you have none. But, no matter where your starting point is, it’s possible to build credit and have a credit score calculated as soon as three to six months from the start of your credit activity.

If you’re just getting started on your credit journey and have no credit history, you’ve come to the right place. In this article, we go over ways to start building your credit today.

 

7 ways you can build credit with no credit history

When you have no credit history, it’s hard to know where to begin. Here are some ways to build credit history quickly when you’re just starting out.

 

 

1. Get a credit builder loan

A credit builder loan is a loan designed to help people with little or no credit history build their credit.

In contrast to a traditional installment loan, where you get a lump sum after you sign your agreement and then pay it back in installments, a credit builder loan secures your loan funds in a certificate of deposit (CD) or savings account after you are approved.

You then pay your monthly payments, which are reported to the credit bureaus. Once all your payments are made, you get your money (minus any applicable interest and fees).

A credit builder loan can contribute to your credit because your payments on it are reported to the credit bureaus. The Consumer Financial Protection Bureau released findings in 2020 from research it conducted regarding credit builder loans.

After studying data from an enrollment period of September 2014 to February 2015, CFPB found that opening a credit builder loan. without an existing loan, increased the likelihood of a person having a credit score by 24%.

Those same participants with no existing debt saw their credit scores increase by 60 points more than participants with existing debt. Also, the credit builder loan resulted in an average increase in participants’ savings balance of $253.

Self’s Credit Builder Account, for example, is a loan in a bank-held CD that you pay off in monthly installments. Each monthly payment is reported to all three credit bureaus, and, at the end of the period, you receive the money back, minus any interest and fees.

 

 

2. Apply for a secured credit card

A secured credit card is another credit product that can help you build credit. It works similarly to an unsecured credit card — both are lines of credit, allowing you to borrow money from the card issuer to make purchases when you want — but with a secured credit card, you provide a cash deposit upfront as collateral, typically placed in a savings account or certificate of deposit (CD). For example, a secured credit card with a $500 credit limit would require a $500 security deposit as collateral.

To obtain a secured credit card, you apply and, once approved, you then must put down a cash security deposit, which acts as your credit limit, and then you can use the card to make charges up to the amount you deposited. If you don’t already have a credit card account or cannot get approved for an unsecured credit card, a secured credit card is a worthwhile credit-building option.

The Self Visa® credit card is a secured credit card option with a few requirements for applying. You need an active Self Credit Builder Account (CBA) in good standing, a savings progress of $100 or more, and to have made three on-time monthly payments on your CBA. If you’re approved, you can use your savings progress towards your security deposit on the card.

 

3. Become an authorized user on a credit card

Becoming an authorized user on a friend or family member’s credit card can help you build credit, especially if they have an account in good standing. Being an authorized user means that you can make purchases with the account but you’re not legally responsible for making payments. Typically, you receive your own credit card and can piggyback off of the primary account holder’s credit to build your own credit history.

See if a trusted friend or family member with good credit would agree to add you to their account. Make sure that the primary cardholder pays the account as agreed, has had the account open for a while and maintains a low credit utilization ratio (CUR), the total revolving debt on the account divided by their credit limit.

Not all credit card companies report authorized users. So contact the credit card issuer and make sure the account is reported to the three major credit bureaus. Sometimes, authorized user activity isn’t reported, which, in the case of credit-building, defeats the purpose.

 

4. Use a third-party service to report rent and bill payments

If you make on-time monthly payments towards your rent and other bills, you can have that positive payment history count toward your credit by using a third-party reporting service. Though these bills aren’t usually factored into your credit report, a third-party reporting service makes them count by reporting your history to the major credit bureaus.

Find out if your landlord or property management company reports rent payments to the three major credit bureaus. If they don’t, you might need to pay for a reporting service yourself. Rent reporting services allow you to add report rent as well as other types of bills to your credit file, such as utilities and cell phone bills, which helps you build your credit history.

These two in particular only report positive payment history on the accounts you link, so late or missed payments won’t lower your credit score. Whatever service you choose, make sure the cost of subscribing is worth the benefit to your credit.

 

5. Find a cosigner if you need to take out a loan

If you’re having trouble getting approved for a personal loan, you can ask someone you trust to cosign it. With a cosigner, both parties share equal responsibility for the debt, and it appears on both parties’ credit reports.

A personal loan can positively affect your credit in several ways. First, making on-time payments on your loan over time gives you a positive payment history, one of the most important factors in calculating a credit score. Missed or late payments on a loan, on the other hand, may negatively impact your credit score, and can result in penalties, especially if your loan has a high interest rate.

A loan may also contribute to your credit mix. This credit scoring factor takes into account the types of credit you have, showing that you can manage a variety of credit products and accounts successfully. However, you shouldn’t take out different credit products just to add new credit to your credit mix — only the ones you really need to use.

Student loans are part of your credit mix and payment history, so making payments on them can be a great way to start building your credit. Since these are among some of the first types of credit you’ll receive, you can begin building a credit history by paying these on time and as agreed.

 

6. Sign up for a store credit card

A retail chain or department store credit card can help you build credit. These credit cards are usually easier to get than regular credit cards, and offer lower credit lines, making them a great starter card for beginners who don’t want to take on too much debt.

However, store cards often come with higher interest rates, so be especially careful in how you use them. They also won’t help your credit in the long term as much as a regular credit card since you’re limited as to where you can use them and generally come with lower spending limits.

 

7. Take advantage of student offers

Student credit cards are credit cards geared towards college students, and are generally designed to be a good first credit card for younger people who don’t have credit history. You don’t usually need collateral or a security deposit to open one.

 

What is a good credit score?

A good credit score falls between 670 to 739 on the FICO® Score range, while a good credit score on the VantageScore® range falls somewhere between 661 to 780. What affects your credit score somewhat depends on the credit scoring model being used to calculate it. In general, the most important factors in your credit score are:

• Your payment history
• Your credit usage
• Your length of credit history
• The types of accounts you have
• Your recent activity

 

 

The two most commonly used credit scoring models, FICO® and VantageScore®, weigh these factors differently and call them by different names, but much of the information they consider in calculating your credit score is the same, or at least overlapping. Each scoring model gets its information on your credit activity from what’s reported to the three main credit bureaus — Experian, Equifax and TransUnion.

Here’s a full breakdown of credit score ranges and what they mean according to the two major credit scoring models:

 

Credit Score Category	FICO®[[10]](#sources)	VantageScore®[[11]](#sources)
Excellent	800+	781–850
Very good	740–799	N/A
Good	670–739	661–780
Fair	580–669	601–660
Poor	<580	500–600
Very poor	N/A	300–499

[^[10]](#sources), [^[1]](#sources)

 

How long does it take to build credit if you have none?

How long it takes you to build credit depends on your unique situation, and building excellent credit — or any level of credit — always takes time. When it comes to getting a credit score, how long that takes mostly depends on the credit scoring model used.

To generate a FICO® score, you need an account that is at least six months old and has been active in the past six months. For a VantageScore®, on the other hand, you only need one active account, even if the account has only been open a month.

 

 

If you don’t have an active credit account, you may be considered credit invisible, meaning you haven’t had a credit report generated by the credit bureaus yet, or unscored, meaning you don’t have enough active credit history to produce a score.

 

How to responsibly build and maintain credit

Whether you want a car loan, mortgage or personal loan now or in the future, lenders will need to perform a credit check. So knowing where you stand with your personal finances and credit history is important, and building good credit habits now may be a great start to a strong credit history.

There’s not one single way to get good credit, but following the right credit habits over time — like only applying for the credit you need, making on-time monthly payments and keeping your revolving utilization low — will help you get there.

And, if your credit-building journey gets challenging, Self’s credit products are here to support you along the way.

Disclaimer: FICO is a registered trademark of Fair Issac Corporation in the United States and other countries.

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Sources

1. Experian. “How Long Does It Take to Build Credit?” https://www.experian.com/blogs/ask-experian/how-long-does-it-take-to-build-credit/. Accessed December 19, 2022.
2. Consumer Financial Protection Bureau. “CFPB Study Shows Financial Product Could Help Consumers Build Credit,” https://www.consumerfinance.gov/about-us/newsroom/cfpb-study-shows-financial-product-could-help-consumers-build-credit/. Accessed December 19, 2022.
3. myFICO®. “How Can I Start Building My Credit History?” https://www.myfico.com/credit-education/faq/improving-a-score/building-credit-history. Accessed December 19, 2022.
4. Experian. “Credit Card Authorized User: What You Need to Know,” https://www.experian.com/blogs/ask-experian/what-is-credit-card-authorized-user/. Accessed December 19, 2022.
5. Experian. “Build Credit History By Paying Your Rent On Time,” https://www.experian.com/rentbureau/rental-payment. Accessed December 19, 2022.
6. myFICO®. “How to Build Credit,” https://www.myfico.com/credit-education/credit-scores/how-to-build-credit. Accessed December 19, 2022.
7. myFICO®. “Types of Credit and How They Affect Your FICO® Score,” https://www.myfico.com/credit-education/credit-scores/credit-mix. Accessed December 19, 2022.
8. National Foundation for Credit Counseling. “Are Retail Store Cards Bad For Your Credit?” https://www.nfcc.org/blog/are-retail-store-credit-cards-bad-for-your-credit/. Accessed December 19, 2022.
9. Investopedia. “What Is a Student Credit Card?” https://www.investopedia.com/what-is-a-student-credit-card-5191388. Accessed December 19, 2022.
10. myFICO®. “What is a Credit Score?” https://www.myfico.com/credit-education/credit-scores. Accessed December 19, 2022.
11. VantageScore®. “The Complete Guide to Your VantageScore®,” https://vantagescore.com/press_releases/the-complete-guide-to-your-vantagescore/. Accessed December 19, 2022.
12. myFICO®. “What are the minimum requirements for a FICO® score?” https://www.myfico.com/credit-education/faq/scores/fico-score-requirements. Accessed December 19, 2022.
13. Experian. “What Is a Good Credit Score?” https://www.experian.com/blogs/ask-experian/credit-education/score-basics/what-is-a-good-credit-score/. Accessed December 19, 2022.
14. Consumer Financial Protection Bureau. “How do I get and keep a good credit score?” https://www.consumerfinance.gov/ask-cfpb/how-do-i-get-and-keep-a-good-credit-score-en-318/. Accessed December 19, 2022.

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Building a good credit score might sound intimidating. However, if you’re starting from scratch and don’t have access to credit, you have options, such as credit builder loans and reporting utility and rent payments. The best part: You can start building your credit right away.

In this guide, we explain some of the best ways to build credit, how your credit score is calculated, and how long it will take to build credit.

 

1. Take out a credit builder loan

If you haven’t been able to qualify for loans through traditional banks or credit unions, a credit builder loan might be a good option, especially if you have poor credit or no credit. Taking out a credit builder loan helps you to build credit history and savings.

In a traditional installment loan, you get your lump sum proceeds up front and pay it back in monthly installments. When you obtain a credit builder loan, you make your monthly payments, which are put into a certificate of deposit (CD) or savings account, and once all of your payments are made, you get your lump sum (minus interest and fees). In addition, each of your payments get reported to the credit bureaus.

For example, Self’s Credit Builder Account offers you a way to simultaneously build credit history and savings. It’s a loan in a bank-held certificate of deposit (CD) that you pay off in monthly installments. Each monthly payment is reported to all three credit bureaus. At the end of the period, you receive the money back, minus interest and fees.

 

2. Sign up for a secured credit card

A secured credit card may help you build credit. After you apply and are approved, you just put down a security deposit, which acts as your credit limit, and then you can use the card to make charges up to the amount you deposited. However, the deposit doesn’t pay your balance. To use your card responsibly, pay attention to your bill’s due date, make on-time payments, pay more than the minimum payment and keep a low credit utilization ratio (CUR).

Your CUR refers to your total revolving debt divided by your total revolving credit limits, and experts suggest maintaining a credit utilization ratio below 30%. However, they add that staying close to 10% offers the best chance at adding a positive impact to your credit score. You should also make sure the lender will report your payments to the three major credit reporting agencies, which will impact your credit score with each bureau.

One secured card option, the secured Self Visa® credit card requires both an active Credit Builder Account (CBA) as well as certain eligibility criteria. After three monthly on-time payments to your CBA, an account in good standing, and a savings progress of $100 or more, you can use your savings progress as a security deposit and order your card. (These requirements are subject to change.) Self’s secured card allows you to set your credit limit using your available CBA progress and monitor your spending activity.

 

 

3. Set up automatic payments to make on-time payments

Automatic payments are scheduled recurring payments that ensure a payment is made, even if you forget. Using autopay prevents unnecessary missed payments from happening and ensures those on-time payments could continue to help your credit score over time. On-time payments are the largest part of your credit score calculation, accounting for 35% of your FICO® score, making on-time payments is an essential task for building credit. One caveat: Make sure you have enough funds in your bank account when the payment is scheduled, or it may be declined or create an overdraft situation.

 

4. Have your rent and utility payments reported

Another option that can help to build your credit is having rent and utility payments reported to the credit bureaus. If you pay your monthly rent and utility bills in full and on time, having them reported to the credit bureaus may impact your credit score in a positive way.

If you sign up for a rent reporting service like Self, your payments get reported to the credit bureaus, which can be factored into certain FICO® and VantageScore® credit scoring models. Keep in mind that while rent reporting impacts FICO® 9 and 10 scores as well as VantageScore®, these models aren’t the most commonly used. However, adding your rental history to your credit report may help if you’re seeking credit from a financial institution that relies on these models.

Self reports your rent to all three bureaus with signup. If you have an active subscription and meet certain eligibility requirements, you can also pay a one-time fee of $49.95 to have up to two years of past rental history reported.

You can report in the same way for utilities, using a service like Self. Your payment history is the most important credit score factor, so making on-time payments and getting them reported helps to build a positive credit history.

 

5. Ask to become an authorized user

You may be able to piggyback off of someone else’s credit account by becoming an authorized user. However, not all credit card companies report authorized users to the credit bureaus, so make sure to check the lender’s policy first.

If they do report authorized users see if a trusted individual, such as a family member, agrees to add you to their account. When looking for someone to add you as an authorized user, be sure that person pays the account as agreed, has had the account open for a while and maintains a low credit utilization ratio (CUR; the total revolving debt on the account divided by their credit limit). If so, the individual’s good credit habits may positively impact your credit score.

Keep in mind that this can conversely hurt your score. If you become an authorized user on an account that has a negative payment history or high CUR, this impacts your score as well, and an account that has only been opened for a short period of time may have little effect.

 

6. Consider taking out a personal loan

A personal loan shouldn’t be taken out simply to help you build credit. However, if you have a costly expense or need to pay off high interest debt, you may want to consider one.

If you qualify for a personal loan, it can help you build credit in several ways. For one thing, it helps with your credit mix, which is a factor that affects credit scores and shows lenders how well you handle different types of credit. It also allows you to build up a positive payment history — provided you pay on time. Make sure to weigh the pros and cons and shop around for the best interest rate.

 

7. Review your credit report for any inaccuracies

Improving your credit score could be as simple as fixing inaccuracies on your credit report. It’s not uncommon for there to be at least one error on your report, and that error could be unnecessarily dragging down your credit score. So be sure to check your report. You are entitled to a free credit report from each bureau every year at AnnualCreditReport.com, and you can also receive a report by contacting the bureaus directly, although you may pay a small fee (no more than $13.50) for each report (Equifax, Experian and Transunion).

Here are some common inaccuracies you may find if you check your report:

• Incorrect accounts from identity theft
• Closed accounts still reported as open
• Same debt listed multiple times
• Incorrect payment or delinquency dates
• Accounts with incorrect balance or credit limit

If you do spot a mistake, you can dispute the error or inaccuracy with each credit reporting company in writing. The Consumer Financial Protection Bureau (CFPB) provides guidance on the ways to dispute an error on your credit report.

 

How is my credit score calculated?

More than 90% of top lenders use FICO® scores. Here is how it is calculated:

• Payment history: Payment history refers to how you’ve paid your accounts over the length of your credit. This makes up 35% of your score, a factor that indicates that you can make payments on time.
• Amounts owed: This factor makes up 30% of your score, and generally refers to the amount of debt you’re carrying. However, your debt total isn’t as impactful as your credit utilization ratio (CUR; your total revolving debt divided by your total revolving credit limits). If you use a high percentage of available credit, it can negatively impact your score.
• Length of credit history: Another factor that impacts your score is how long you’ve had credit — holding accounts open over long periods of time can have a positive effect on your credit. This accounts for 15% of your score.
• Credit mix: Your score takes into account your mix of different types of credit accounts. This shows lenders you can manage multiple types of credit responsibly. This makes up 10% of your credit score.
• New credit: The final factor is new credit, which is the credit accounts you’ve opened recently. According to FICO®, opening too many accounts within a short timeframe corresponds to greater risk, especially for individuals with a shorter credit history. This is 10% of your score.

 

How long does it take to build credit?

It may seem overwhelming to build credit from the ground up, but the truth is it may take less time than you think. If you’re starting from scratch, it may take about six months after getting your first credit product to start seeing results.

Keep in mind that credit building from scratch may be faster than rebuilding bad credit, depending on the state of your personal finances — whether you were bankrupt or have delinquencies that brought down your score. Negative credit marks, such as late payments, bankruptcies and collections, can stay on your report for seven years, while a Chapter 7 bankruptcy can remain for 10 years.

The journey of a thousand miles begins with a step, so the best way to start building (or rebuilding) your credit is to start good credit habits today with some of the options listed above. Expect that this process will take time and patience.

Disclaimer: FICO is a registered trademark of Fair Issac Corporation in the United States and other countries.

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Sources

1. MyFICO. “How Do I Go About Building My Credit History?” https://www.myfico.com/credit-education/faq/improving-a-score/building-credit-history. Accessed August 2, 2022.
2. MyFICO. “What is Payment History?” https://www.myfico.com/credit-education/credit-scores/payment-history. Accessed August 2, 2022.
3. MyFICO. “What Should My Credit Utilization Ratio Be?” https://www.myfico.com/credit-education/blog/credit-utilization-be. Accessed November 15, 2022.
4. U.S. News and World Report. “How Can You Get Credit for Paying Rent?” https://money.usnews.com/credit-cards/articles/how-can-you-get-credit-for-paying-rent. Accessed August 2, 2022.
5. MyFICO. “How to Start Building Your Credit for Free,” https://www.myfico.com/credit-education/blog/building-credit-free. Accessed August 2, 2022.
6. Experian. “How Does a Personal Loan Affect Your Credit Score?” https://www.experian.com/blogs/ask-experian/how-does-a-personal-loan-impact-your-credit. Accessed August 2, 2022.
7. Equifax. “Why Should I Check my Credit Reports and Credit Scores?” https://www.equifax.com/personal/education/credit/report/why-check-your-credit-reports-and-credit-score. Accessed August 2, 2022.
8. Consumer Financial Protection Bureau. “How do I dispute an error on my credit report?” https://www.consumerfinance.gov/ask-cfpb/how-do-i-dispute-an-error-on-my-credit-report-en-314/. Accessed December 9, 2022.
9. MyFICO. “What is Amounts Owed?” https://www.myfico.com/credit-education/credit-scores/amount-of-debt. Accessed August 2, 2022.
10. MyFICO. “What is the Length of Your Credit History?” https://www.myfico.com/credit-education/credit-scores/length-of-credit-history. Accessed August 2, 2022.
11. MyFICO. “What Does Credit Mix Mean?” https://www.myfico.com/credit-education/credit-scores/credit-mix. Accessed August 2, 2022.
12. MyFICO. “What’s in my FICO® Scores?” https://www.myfico.com/credit-education/whats-in-your-credit-score. Accessed August 2, 2022.
13. Equifax. “How Long Does Information Stay on My Equifax Credit Report?” https://www.equifax.com/personal/education/credit/report/how-long-does-information-stay-on-credit-report. Accessed August 2, 2022.