How to Build Credit History from Scratch

By Miranda Marquit

Without a solid credit history, it can be difficult to meet some of your financial goals. In some cases, depending on the situation and the state, a lack of credit can make it harder to get an apartment, cost you more in insurance premiums, and even make it more expensive to get your next smartphone.

While there are those who make it a point to live outside the credit system, for many of us, it’s important to build credit history to take advantage of some of the benefits that come with a good credit reputation.

Here’s what you need to know if you want to build your credit history from scratch.

Ways to Build Credit History

The reality is that you need credit to build credit. But getting that credit can be difficult. Here are some ways that you can establish your credit — even if you’ve never had a loan.

Apply for an Unsecured Student Credit Card

If you’re young, you might be able to get an unsecured credit card if you apply for a student card. Student credit cards often have flexible credit requirements, and they understand that you probably have a thin credit file.

However, realize that student credit cards often have less-valuable rewards programs, higher interest rates, and lower credit limits.

As you make payments on time, though, you’ll see your credit score increase — and your credit limit rise as well. After several months, you might qualify for a better credit card with better rewards.

Just make sure you only spend on what you’ve budgeted for. Pay off the balance each month to avoid interest charges.

Get a Secured Credit Card

In some cases, getting an unsecured card isn’t an option. When that happens, you can build credit history with the help of a secured card.

A secured credit card is one that requires collateral. You might have to deposit money in a separate account in order to secure the card. It’s important to note that your security deposit shouldn’t be used for monthly payments.

As you use the card and make payments, you’ll build credit history. Depending on the card, you might be able to convert it to an unsecured card. Or, after you’ve built your credit, you can apply for an unsecured card and close the secured account (and get your security deposit back).

Find a Cosigner for a Loan

My first credit-building experience was actually a car loan. There was no way I could get a car loan on my own. However, my parents were willing to cosign on the loan for me. As a result, I was able to get a loan based on my parents’ credit.

Making regular on-time payments allowed me to begin building my credit. A few months later, I was able to apply for — and get — an unsecured credit card.

Get Added as an Authorized User

Do your parents have good credit and a credit card? Ask if you can be added as an authorized user. This also works if you have a partner who has a credit card. As an authorized user, you receive some of the reflected habits of the cardholder. The downside, though, is that if they mess up, it could bring you down.

Try using more than one of these methods to start to build credit history. As you move forward, you can do even better in the long run.

Tips for Maintaining Good Credit

Just establishing your credit history isn’t enough. You have to maintain good credit and avoid major credit mistakes. In order to get the best rates on financial services, good credit is essential. Here are some of the things you can do to maintain good credit:

  • Pay on time: Payment history is the most important factor in your credit score. Pay on time, and it will help you more than just about anything you do.
  • Keep your debt levels low: When you have a credit card, best practice is to pay it off each month. The further you are from using your entire credit line, the better your credit.
  • Create a spending plan: A spending plan can help you keep track of where the money is going and avoid over-spending — and carrying a balance on your credit cards.
  • Apply for credit judiciously: Be careful about how often you apply for credit. The more often you apply, the more your score will be dinged. If you know you’ll apply for something big, like a mortgage, avoid applying for credit cards for a while.

As you use credit responsibly, you’ll be in a better position to make the most of your money — and avoid expensive problems later.