I have zero credit. Never had a credit card. What's the best first step to build my credit?
The first step to building a credit history is to get a credit account. You won't have a credit report until you have a credit history, and you won't have a credit history until you have at least one account associated with your name.
When you open a credit account, the lender will likely report that account to the national consumer credit bureaus (Experian, TransUnion and Equifax) at the end of its first billing cycle, usually within a couple of months of you opening it. However, not all lenders report credit accounts to the bureaus, so you might ask the company you are applying with beforehand to be certain.
Once an account is opened in your name, or you're added to an existing account, Experian will create a report for you using the information sent to us by the creditor.
How Can I Get Credit for the First Time?
When you've never had credit before, qualifying for your first account can feel daunting—it's true that it can be hard to get credit when you don't have credit.
If you are having trouble qualifying for an account on your own, there are multiple options available to you:
- Open a secured credit card account. Secured accounts require you to give the lender a security deposit in exchange for a credit card account. Often, the amount you deposit becomes your credit limit. You may receive a small credit limit even if you can afford to put down a larger deposit. Secured accounts are easier to qualify for because if you fail to pay, the lender can use the money in your deposit account to cover the outstanding debt. If you manage the account well and make all payments on time, you can see an improvement in your credit scores, and the lender may eventually convert the account to a traditional, unsecured credit card.
- Ask a family member to cosign for you. If you have a close family member with good credit, you might ask them to cosign for a small loan or a credit card for you. Keep in mind that cosigners are equally responsible for the account, so any missed payments or high balances will appear on their credit report as well as yours, potentially damaging scores for both of you.
- Start as an authorized user. As long as the account doesn't have a history of late payments, and is reported to the credit bureaus, being an authorized user on a friend's or family member's credit card account can help you begin a credit history in your name. Because authorized users are not responsible for making payments, not all lenders report these accounts to the credit reporting agencies, so check with the company before being added.
- Sign up for Experian Boost®ø. Experian Boost allows you to add your on-time utility, cellphone and Netflix® payments to your credit report. Although anyone can benefit, those with thin files (five or fewer credit accounts) often benefit the most.
Building Your Credit for the Future
Once you've established a positive credit history by opening an account or two and making all your payments on time, it should be easier to qualify for new credit and favorable interest rates going forward. The two most important factors in a good credit score are your payment history and your credit utilization ratio, so remember to keep any credit card balances as low as possible. Ideally, you should pay your revolving account balances in full each month.
The length of your credit history is another contributor to your credit scores, so it may take some time before your credit history is as strong as you would like it to be. In the meantime, you can order your free Experian credit score periodically and pay attention to the risk factors included with your score. These factors let you know which elements in your credit report you can improve on in order to improve your scores.
Thanks for asking.
Jennifer White, Consumer Education Specialist
This question came from a recent Periscope session we hosted.