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How to build credit with no credit history

How to build credit from scratch
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Did you know payment history makes up 35% of your credit score?

So why does this matter? Your credit score affects many areas of your life, including:

  • Borrowing money: Your credit history determines whether or not you can take out a loan and if so, at what interest rate. People with good credit get the lowest rates, which can save a lot of money over time.
  • Getting credit cards: The same goes for credit cards — a good credit history will allow you to qualify for the best low-rate cards, while poor credit could prevent you from getting a credit card at all.
  • Finding a place to live: Landlords will often look at your credit report to decide whether or not they'll rent to you.
  • Opening utility accounts: If you have poor credit, you might have to pay a deposit up front to open a utility account, such as electricity.
  • Getting a job: Some employers will pull a special version of your credit report when you apply for a job. If you have any major negative entries, you could be denied the position, especially if it involves handling large sums of money.
  • Finding affordable car insurance: A special report by Consumer Reports found that having poor or no credit often impacts your car insurance rates more than any other factor, including having a moving violation or even a DWI.Consumer Reports found that even those with "good" rather than "excellent" credit pay more for car insurance.

How can I begin to establish a credit history?

Using a credit card is a common way for people to build credit. You can charge everyday expenses to the card, pay the balance each month, and watch your score increase.

Credit card companies consider a lot of factors when reviewing your application. However, there are two things that matter most: your credit score and the income you report on your application.3 Creditors want to see that you have decent credit, as well as whether you have the ability to afford your payments.

Of course, if you haven't built up a strong credit history yet, building credit with a credit card might not be an option right away.

How do I build credit without a credit card?

Don't be discouraged if your credit card application was turned down. There are other ways to establish a credit history.

  • Secured credit card: Secured cards work a lot like regular credit cards, except that you “secure" a line of credit up front by paying a deposit. These are great tools for people who don't qualify for traditional credit cards yet because they have poor credit or no credit.
  • Student loan: If you're in college, you might need to borrow money to pay for educational expenses. Putting a small federal student loan in your name is a great way to build credit since you don't actually need credit to get approved. Just be sure you only borrow what you can easily pay back.
  • Car loan: If you need to purchase a car, consider taking out a small auto loan to cover some or all of the cost. Sometimes it's easier to qualify for an auto loan than a credit card since it's backed by collateral (the car). However, it's important to keep in mind that if you have less-than-stellar credit, you'll be charged a higher interest rate — even more incentive to pay the loan back quickly!
  • Secured loan: Another option is to take out a secured loan from a bank. A secured loan is usually easier to qualify for since you put up collateral, such as cash, a bank account, your car's title, or even valuables. Secured loans can be used for just about anything, such as making a big-ticket purchase or consolidating debt.
  • Rent payments: Typically, the rent payments you send your landlord don't affect your credit. But there are a few new companies, such as Rental Kharmaand RentTrack,5 that can report your payments to the credit bureaus for a small fee. This is a great option if you don't want to take on any debt to build credit.

Once you've built up some positive credit history using one or more of these options, you should have an easier time getting a credit card.

How do I maintain good credit?

It's important to use your credit card and other loans responsibly so they help, not hurt, your credit. One of the best ways to do that is by making all your payments on time.

Payment history is the most heavily weighted factor in calculating your credit score, accounting for 35%.6 That means that just one missed payment could have serious consequences. Ensure your credit card debt doesn't get out of hand by only charging what you can afford to pay back, keeping your balance low, and paying off the whole balance whenever you can so you don't rack up interest charges.

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Important Disclosure Information

This content is general in nature and does not constitute legal, tax, accounting, financial or investment advice. You are encouraged to consult with competent legal, tax, accounting, financial or investment professionals based on your specific circumstances. We do not make any warranties as to accuracy or completeness of this information, do not endorse any third-party companies, products, or services described here, and take no liability for your use of this information.

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  1. Kevin Outlaw, "What Is a Good FICO Score?" Bankrate, accessed October 11, 2018. Back
  2. "The Secret Score Behind Your Rates" Consumer Reports, accessed October 17, 2018. Back
  3. Casey Bond, "What Annual Income Is Required for a Credit Card?" U.S. News, accessed October 9, 2018. Back
  4. Rental Kharma, accessed October 17, 2018. Back
  5. RentTrack, accessed October 17, 2018. Back
  6. Brady Porche, "FICO's 5 factors: The components of a credit score," CreditCards.com, accessed October 12, 2018. Back

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