How Can I Build My Credit If I Have No Credit History? (2024)

You don’t technically “need” to have a credit history. If you live a minimalist lifestyle, spend only cash and don’t ever take on debt, you may be able to get by just fine.

However, there’s no denying that living without a credit history can throw up a lot of financial obstacles for the average American. Here’s an overview of the ways you can go about achieving a solid credit history and score and how it will benefit your finances.

Why Is a Credit History Important?

Your credit history is a record of how you’ve handled debt in your life. Since it is recorded by third-party credit agencies, it’s considered a reliable record of the debt you have taken out in the past and how you’ve managed your payments.

This is invaluable for any potential creditors who have no firsthand knowledge of how financially responsible you are. Without a credit history, all they would have to base their lending decision on is your word, which doesn’t usually get you very far in the business world.

Even if you don’t anticipate borrowing money anytime soon, you’re likely going to want to get a credit card, buy a home or even rent an apartment at some point. As it usually takes a credit history to get new credit, you’ll want to build yours up as early as possible.

How Can You Build a Credit History?

There’s an old expression in financial circles that “it takes money to make money.” The same thing is true in the credit world: It takes a credit history to build a credit history. This age-old dilemma means that you should work on building your credit history as early as possible, because the more extensive your record, the better your chance to raise your credit score. However, it’s never too late. You can establish credit almost immediately and then build a positive credit history and credit score by using your new credit responsibly over time.

1. Report Your Rent to Credit Bureaus

Some property managers report rent payments to credit bureaus, which can be a good thing for tenants who pay on time and want to establish a credit history. If your landlord doesn’t report rent, you can ask them to sign up with a service like Esusu, which offers rent reporting through an initiative with Freddie Mac. If your landlord won’t take it on, you can do it on your own, although you’ll have to pay a fee.

RentReporters is one service to explore. For a fee, it will verify your rent payments with your landlord and confirm that you’ve paid on time. It then reports your payments to the credit bureaus to add a rent tradeline to your credit report. RentReporters says it takes five to seven days for the tradeline to appear on your credit report and be reflected in your credit score (if you have one). The record is updated monthly to continue adding payments to your history.

RentReporters can also report to credit bureaus without contacting your landlord, but you’ll have to link your bank account to your RentReporters account. Self has a similar rent-reporting service that also reports cell and utility payments through your linked bank account.

2. Become an Authorized User on Someone Else’s Credit Card

If you have a friend or family member with impeccable credit, having them add you to one of their credit card accounts as an authorized user can help you establish a credit history based on their account — as long as the card issuer reports authorized users’ account activity to credit bureaus, which is something you’ll want to confirm in advance. The authorized user gets their own card with their own name on it, but the charges are billed to the account holder’s account.

Being an authorized user isn’t the same thing as having an account in your own name. As far as the credit card issuer is concerned, the account holder has full responsibility for paying the bills — if you fail to pay your portion, the account holder will have to pay it. The credit bureaus know this, so they give your status as an authorized user less weight than they would give your status as an account holder.

3. Get a Credit-Builder Credit Card

Credit-builder credit cards are an easy way to establish credit, and you don’t have to have credit to get one. While specific card offerings vary by issuer, they all have one thing in common — they’re secured by funds you deposit into an account to cover your credit line, and the card issuer reports your payments to the credit bureaus.

Discover, for example, has a standard secured credit card. You make a refundable security deposit of $200 or more to establish your credit line. Any amount you charge to the credit card is held against the security deposit, so you’re essentially borrowing your own money, but Discover charges you interest on your outstanding balance. As you pay your bill each month, Discover reports the payments to the credit bureaus. After seven months of on-time payments, you have an opportunity to upgrade to an unsecured account and have your deposit refunded.

4. Take Out a Credit-Builder Loan

Credit-builder loans help you establish credit and/or improve your credit history with little or no risk of default. In practice, it’s essentially the opposite of a typical loan. With a regular loan, the lender advances the funds to the borrower, and the borrower repays the loan with interest. A credit-builder loan, on the other hand, deposits the funds into a savings account. The borrower has to pay off the loan before they can access the account. In the meantime, the lender reports the borrower’s payments to the credit bureaus, which establishes or expands their credit history.

CreditStrong’s credit-builder loan program demonstrates how this works. Its Instal loan is a $1,000 installment loan, similar to a car loan. CS Max is a larger installment loan of $2,500 to $25,000. Austin Capital Bank, the bank behind CreditStrong, deposits the loan funds into a locked savings account in the borrower’s name. The borrower pays an upfront fee of $15 to $25, depending on the loan, and makes monthly principal and interest payments, just like with a regular installment loan. CreditStrong credits the principal payment against the savings account balance and reports the payments to the credit bureaus. Once the loan is fully repaid, the savings account gets unlocked, and the funds are the borrower’s to keep.

5. Apply for a Store Credit Card

Store credit cards are easier to qualify for than bank cards are, and you might get approved for one with no credit history. Although you can apply for a card on the store’s website, retailers often invite customers to apply at the register in order to take advantage of a promotion, such as a discount on that day’s purchases, if approved.

You have the best chance of being approved if the card is a “closed-loop” credit card, according to Chase. A closed-loop card can only be used for purchases at that particular store or for that store’s brands. An open-loop store card, on the other hand, is co-branded by the store and a credit card network like Visa or Mastercard and can be used for purchases from other merchants.

How Do Credit Scores Affect Your Finances?

Your credit history documents all of the current credit accounts you have open, along with any ones that you closed over the past 10 years. From this information, the credit agencies derive your credit score. While your credit history may help determine if you can even open a new credit account, your credit score will likely determine how much you will have to pay in interest on your new loan.

The industry-standard FICO score, for example, runs on a scale from 300-850. The meaning of your credit score is divided into broad ranges, as follows:

• Less than 580: Poor
• 580-669: Fair
• 670-739: Good
• 740-799: Very Good
• 800 and above: Exceptional

As you might expect, the higher your credit score, the lower the interest rate you can usually get on your loans. For example, here are the types of interest rates you can get for a mortgage as of Aug. 31, according to myFICO:

• 760-850: 6.751%
• 700-759: 6.973%
• 680-699: 7.150%
• 660-679: 7.364%
• 640-659: 7.794%
• 620-639: 8.34%

While the differences in interest rates based on credit score may seem relatively small, they actually translate to huge amounts over time. For a $300,000, 30-year mortgage, for example, a 6.751% interest rate will result in $400,558 of interest over the life of the loan. However, that same mortgage at an 8.34% interest rate will result in a whopping $518,211 in interest paid.

That’s an increase of $117,653 in pure interest costs just for having a low credit score.

How Is Your Credit Score Calculated?

Five factors go into your FICO score. Each factor is weighted according to its influence:

• Payment history: 35%
• Amounts owed: 30%
• Length of credit history: 15%
• New credit: 10%
• Credit mix: 10%

Create a Long-Term Strategy To Build Your Credit History and Score

You can establish credit in minutes, but building a credit score takes more time because it requires a history of credit use — six months or more from the time you open your first account, according to Discover.

You can use the factors that determine your credit score to create a strategy for building a positive credit history and high credit score:

• Payment history: The most important way to build a positive credit history and credit score is to pay bills on time.
• Amounts owed: Keep balances low — not just on your available credit as a whole, but within each individual account as well. FICO disputes the conventional wisdom that you can improve your score by limiting your balances to 30% of your credit limit. It recommends using no more than 10% of your credit limits at any one time and notes that low utilization can actually be better for your score than 0% utilization.
• Length of credit history: A longer credit history is better for your score, and it’s better still if you use your credit regularly. Every new account reduces the average age of your credit history, so avoid opening new lines unnecessarily.
• New credit: When you apply for credit and the creditor does a hard inquiry on your credit report to decide whether to approve you for credit, the inquiry appears on your credit report and may cause a temporary drop in your credit score. However, multiple inquiries for the same type of credit, such as a car loan, only count as one inquiry as long as they’re made close together, which indicates you’re shopping for the best loan. Note that soft inquiries — such as when you check your own credit report or a lender looks at it to preapprove you for credit — have no effect on your credit.
• Credit mix: Credit mix looks at the different types of accounts you have, with more types being better for your score. FICO considers bank cards, store cards, installment loans, finance company loans and mortgage loans but notes you don’t have to have one of each to have a high score. When you need new credit, keep the mix in mind — it might influence the kind of account you apply for.

John Csiszar contributed to the reporting for this article.

Information is accurate as of Sept. 3, 2023.