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Finding a lender to approve you for a loan can be an uphill battle if you're new to credit or "credit invisible." Credible invisible consumers don't have enough payment history reported to the credit bureaus to produce a credit score.
Lacking credit history may not seem like a problem if you primarily use cash and have no need to borrow money. But when it's time to finance a home or car, not having a credit history or having a thin credit file could be a barrier standing between you and a new house or a set of wheels. A strong credit profile can also be important when you're renting an apartment, opening utility accounts, buying insurance and even applying for a job.
The good news is it's possible to build good credit from scratch—and getting started today could put you in a better position to meet your financial goals of tomorrow. Here are five ways to start building credit now.
1. Become an Authorized User
If you don't have a history of managing credit accounts, it can be difficult to get approved for loans or credit cards. Becoming an authorized user on a family member's or friend's credit card is one way to build credit that doesn't involve applying for your own credit card. As an authorized user, you'll be added to the primary cardholder's account and get your own card, which you can use to make purchases (as long as the account owner agrees). The credit card account, and its payment history, will appear on your credit report, helping you establish a credit history and score.
Before asking a family member or friend to add you as an authorized user, it's important to make sure that the lender reports authorized-user accounts to the credit bureaus. If payments aren't reported, this strategy may not do you much good.
Also, be selective with whose credit history you decide to piggyback on. You should only become an authorized user on an account where the primary cardholder has an excellent payment history and keeps the balance low.
2. Apply for a Secured Card
Applying for your own secured credit card can be an excellent way to build credit. A secured card is typically easier to qualify for than a traditional unsecured card because it requires a deposit upfront that "secures" your credit line.
The deposit you'll need to provide varies depending on the credit card. For example, both the The OpenSky® Secured Visa® Credit Card from Capital Bank and the Platinum Select Mastercard® Secured Credit Card require a $200 minimum deposit. With the Capital One Platinum Secured Credit Card, you can put down a deposit starting at $49 for a $200 credit limit.
Credit limits can also vary on secured cards, but often they are equal to the deposit amount. Some secured cards may charge an annual fee and other additional fees. If you're considering a secured card, shop around to see which credit card best fits your needs. Experian CreditMatch™ can help you find secured cards that may be right for you.
Once you establish a positive payment history on the secured card, you may get your deposit back and the opportunity to upgrade to an unsecured card.
3. Apply for a Store Card
Credit cards offered by stores are generally easier to qualify for than other traditional unsecured credit cards. If you frequent a certain store often, signing up for the store card could help you build credit while you do shopping you planned to do anyway.
One thing to be aware of: Store cards tend to charge higher interest rates than other cards. If you decide to open a store card to build credit, the best strategy is to pay off the entire balance each month. This way, you can avoid high finance charges.
4. Use Experian Boost™†
Utility payments and other monthly bills are generally not included in your credit report and thus can't help you build your credit history and score. However, signing up for Experian Boost is a way to add certain on-time subscription, cellphone, utility and cable bills to your Experian credit report and help you build your credit.
Using Experian Boost is free and easy to set up. Once you create an account, you choose the bank account you make monthly bill payments from and select the payments you want to add to your Experian credit report. If you have no credit accounts or score, Experian Boost can help you become scoreable.
5. Have Rental Payments Reported
If you pay rent on time each month, those payments could also potentially help you build credit. Like utility payments, rental payments are typically not included in your credit report. But you could ask your landlord or property management company to report your on-time payments through a service like Experian RentBureau.
If that's not an option, third-party rent payment services may report payments to the credit bureaus for you. These companies may charge monthly or annual fees, which is something to consider when signing up.
Building Credit Takes Time
Building credit from scratch usually doesn't happen overnight. After opening your first credit account, it could take several months before enough payment history is reported to generate a credit score. That's why it's a good idea to start working on your credit before you actually need it.
To keep tabs on your credit building progress, consider monitoring your credit using Experian CreditWorks℠. Experian CreditWorks is free and offers credit alerts and FICO® Score☉ updates monthly.
While working on your credit, remember that slow and steady wins the race. If you keep account balances low and pay on time consistently every month, you'll be on your way to attaining the credit you need to achieve your financial goals.