In a Nutshell
If you’re new to credit, it can be tough to know where to start. Getting a credit score won’t happen overnight, but it is possible.Getting credit is a bit of a Catch-22.
You need good credit to qualify for many of the best credit cards and loans, but how can you establish credit without a credit card?
In brief, you’ll need to establish an account that reports to one or more of the three main credit bureaus.
We’re here to help. It takes time and patience, but it is possible to build your credit from scratch and get a credit score. Here are five ways to get started.
- Ask for your bills to be reported
- Apply for a secured or store credit card
- Become an authorized user
- Apply for a loan
- Pay your rent on time
1. Ask for your bills to be reported
You might be one step closer to building credit than you realize.
Do you have a cellphone? Do you pay for utilities like water, electricity, gas or trash? Do you watch cable TV? Consider asking these service providers to report your payment history to the credit bureaus. You should also make sure to pay your bills on time.
2. Apply for a secured or store credit card
Making on-time credit card payments is a key way to build credit. If you don’t qualify for a traditional credit card, a secured card or a store card could help you start building up a history of on-time payments.
Secured cards
A secured credit card is often recommended as an entry-level card if you’re new to credit. These cards require a cash deposit that serves as collateral in case you miss a payment. Try to avoid this: Not only could you lose your deposit, but it could also take a toll on your credit-building efforts.
On the other hand, if you use the card responsibly, make on-time payments and pay off your balance in full each month, you may be able to build credit and eventually upgrade to an unsecured card (and get your deposit back).
Learn more about how secured credit cards work.
Store cards
Store credit cards can help you save money at your favorite stores and they may also help you establish a track record of handling money responsibly. But beware of the high interest rates these cards may charge if you don’t pay off your balance in full each month. They may also have low credit limits, which could affect your credit utilization rate.
Paying off your entire balance on time each month can help you avoid interest charges. And keep in mind, you don’t need to carry a balance on your credit cards to build credit.
Learn more about how retail cards work.
3. Become an authorized user
In addition to opening your own credit card — or if you’re not ready to do that — a trusted friend or relative who has a longer credit history and makes regular on-time payments might be willing to make you an authorized user on one of their accounts.
Most credit card companies will report information from accounts you’re an authorized user on to the credit bureaus, too. So long as the account is in good standing, this can positively impact multiple credit factors that go into your credit score, like payment history, age of credit history and number of total accounts.
The downside is the primary account holder is on the hook for every penny you spend. And if they don’t pay on time, it could hurt the both of your credit scores.
Learn more about what you should know about being an authorized user on a credit card.
4. Apply for a loan
Making on-time loan payments is another way to build your credit.
Auto loan
Buying a car can help you build credit, as long as you make on-time payments on your auto loan. 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.
Personal loan
Personal loans and peer-to-peer loans also help you build credit, but be wary of high interest rates.
Secured loan
A secured loan, also known as a credit-builder loan, works like a secured credit card. You deposit money upfront that is used as collateral if you default on your payments.
5. Pay your rent on time.
If you rent an apartment but your landlord doesn’t report your positive payment history to the credit reporting agencies, check out services like RentTrack that report your on-time payments to all three credit bureaus for a small fee.
Bottom line
Building credit takes time and patience. If you’re having trouble getting started, don’t be afraid to ask a trusted friend or relative for help. And keep in mind, you may be able to build credit by having monthly payments you already make reported to the credit bureaus.