How to Build Credit From Scratch in the US | DebtShift

No credit history isn’t bad credit. To a lender it’s worse in one way: you’re invisible.

Landlords, phone companies and card issuers can’t tell if you pay your bills, so they guess, and a guess usually means no or a deposit. If you want to build credit from scratch in the US, the job is simple to say and easy to botch: get one account that reports to the credit bureaus, and pay it on time.

The free AI Credit Score Roadmap turns your starting point into a plan, and our complete guide to paying off debt helps if you already owe money.

The one question to ask before any of these

Does it report to the credit bureaus? Experian says authorized-user accounts only help if the lender reports them, and Capital One advises confirming which bureaus a credit-builder lender reports to, because without reporting the loan doesn’t build credit (Experian, Capital One). Skip it and you could pay for months with nothing on your file.

Your starter options, from Experian’s list

• Secured credit card. You put down a deposit that secures the line, and the limit is often equal to the deposit. Some cards charge annual or other fees. After positive history you may get the deposit back and move to an unsecured card.
• Credit-builder loan. Your payments go into an account and you get the money back at the end of the term, minus interest and fees. Some lenders look at banking history or income, not credit history. Missed payments can still damage your credit.
• Authorized user. You’re added to a family member’s or friend’s card, and the account’s history can appear on your report if the lender reports it.
• Store card. Easier to qualify for, with higher interest rates. Pay the balance in full.
• Rent and bill reporting. Ask your landlord to report rent, or use Experian Boost for eligible bills.
• Experian Go. A free program for people with no credit report, where you sign up and create an Experian credit report.

Source for the whole list: Experian. Pick one or two, not all six.

What a credit-builder loan actually costs

Capital One’s example is a $500 loan at 9% over 12 months, with payments of about $44 a month (Capital One). Running the numbers: payments of about $44 add up to roughly $525, so the interest is around $25. You don’t get the money until the end, minus any fees. The CFPB figure Capital One quotes is that these loans typically run $300 to $1,000 over six to 24 months.

Our own calculation from Capital One’s example figures. Fees vary by lender.

That is the price of a record. Cheaper if the lender doesn’t add fees, pointless if it doesn’t report.

Once you have the account

Payment history is 35% of a FICO Score and amounts owed is 30%, per myFICO (myFICO). Paying on time and keeping balances low covers about two thirds of the scoring weight. Length of history is 15%, which is the one piece you can’t rush. Experian gives no exact utilization target for beginners, so keep balances low and check where you stand with the credit utilization calculator.

Not sure what happens after the first score? Our timeline guide shows what to expect.

Mistakes that cost the most in year one

With only one or two accounts, a single slip counts for a lot, because there is nothing else on the report to balance it out. The usual ones: missing a payment, carrying a balance you could have cleared, applying for several cards in a few weeks, and closing your first card once you get a better one. Keep it open and put one small bill on it, then pay in full. Also check your reports at least once, since errors and identity theft are easier to catch early.

Common worries, answered plainly

I’m 18 with no credit. What is the easiest first step?

For most people it’s a secured card or a credit-builder loan, since neither depends on an existing credit history. Experian says a secured card is backed by a deposit, and some credit-builder lenders look at banking history or income instead (Experian). If a parent has a good card, being added as an authorized user is the other fast route, as long as the issuer reports it.

Does being an authorized user really work?

Experian says the account and its payment history can appear on your credit report, but the lender has to report authorized users to the bureaus or it may not help (Experian). Ask the card issuer before you rely on it.

Will applying for a card hurt my credit?

Applying usually leads to a hard inquiry, and Experian says hard inquiries stay on your report for two years though they affect your FICO Score for only one (Experian). So don’t fire off several applications at once.

Can I build credit with no card and no loan?

Partly. Experian says rent is typically not on credit reports, but you can ask your landlord to report it, or use Experian Boost to add rent and eligible bills. Experian notes Boost needs an account open for six months and one active in the last six, and that not every lender uses Experian files (Experian).

Is a store card a good starter card?

It’s easier to qualify for, Experian says, but store cards tend to carry higher interest rates. If you use one, pay the full balance every month. Carrying a balance on it is where the cost shows up; the minimum payment trap calculator shows how fast interest eats a small balance.

How many months until I have a score?

Experian says it could take several months after your first account before there’s enough history for a score (Experian). How long it takes to build credit in the US lays out the timeline in more detail.

I have no Social Security number. Can I still build credit?

Some lenders accept an ITIN (Individual Taxpayer Identification Number) in place of an SSN, so ask before you apply. Credit-builder loans at credit unions are a common place to start.

How long before I should ask for a better card?

A year or two of on-time payments on a starter card is a common benchmark for better offers. Ask your issuer whether they will upgrade a secured card and return your deposit.

Worth reading next

• What Is a Bad Credit Score and How to Fix It | DebtShift
• How to Dispute Errors on Your Credit Report | DebtShift

AI Debt Payoff Planner

See your exact debt-free date free.