How to Start Building Credit When Starting From Scratch
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How to Start Building Credit When Starting From Scratch

Starting from scratch with building credit can feel daunting, but the good news is that it’s entirely possible with some careful steps. Here’s how you can start building your credit from zero:

1. Check Your Credit Report (If You Have One)

  • Even if you’re starting from scratch, it’s a good idea to check your credit report to make sure you don’t have any errors or fraudulent accounts that could be holding you back.
  • You can check your report for free once a year at AnnualCreditReport.com. You can also use Credit Karma or Experian for more frequent updates.

2. Get a Secured Credit Card

  • What It Is: A secured credit card is a type of card where you put down a deposit (often $200 to $500) as collateral. Your credit limit will typically match the amount you deposit.
  • Why It Helps: Lenders will report your payments to the credit bureaus, allowing you to build a credit history. Make sure to pay off your balance in full every month to avoid interest charges and help build a positive credit history.
  • Recommended Brands: Discover it® Secured, Capital One Secured Mastercard, or OpenSky Secured Visa.

3. Consider a Credit Builder Loan

  • What It Is: A credit builder loan is a small loan where the amount borrowed is held in a bank account while you make regular payments. After you’ve paid off the loan, the funds are released to you.
  • Why It Helps: Like a secured card, this will help establish a credit history, and your payments are reported to the credit bureaus. Many credit unions offer these loans.

4. Become an Authorized User

  • What It Is: Ask a family member or friend with good credit if you can be added as an authorized user on their existing credit card account.
  • Why It Helps: You can benefit from their credit history without needing to have your own account. Just make sure the cardholder pays on time, as missed payments could hurt both of your credit scores.

5. Use Your Credit Responsibly

  • Pay On Time: Always pay your bills on time. Payment history is one of the biggest factors in determining your credit score.
  • Keep Credit Utilization Low: Try to use less than 30% of your available credit on any card or line of credit. For example, if your credit limit is $500, aim to keep your balance under $150.
  • Avoid Too Many Inquiries: When you apply for new credit, it creates a hard inquiry on your credit report. Too many inquiries in a short time can hurt your score.

6. Use a Co-Signer (If Available)

  • If you can’t get approved for a traditional or secured card, a family member or friend with good credit can co-sign a loan or credit card application for you. This means they agree to pay if you don’t, which can increase your chances of approval.

7. Monitor Your Credit Regularly

  • As you start building credit, it’s important to track your progress. Services like Credit Karma or Experian provide free access to your credit score and will help you keep an eye on any changes to your credit report.

8. Be Patient

  • Building a solid credit score takes time. Your score may start off low but will improve gradually as you demonstrate good credit habits. It may take a few months to see significant changes.

Key Things to Remember:

  • Start Small: Even small steps can help you get on the right track.
  • Stay Consistent: The key is making payments on time and not overextending yourself financially.
  • Check Your Report: Regularly monitor your credit report to catch any issues early.