How can I build credit if I have no credit history?

The NFCC often receives questions from readers about their money challenges. We answer common questions in our Ask an Expert series to help readers find the information they need.

Question: How can I build credit if I have no credit history? I’ve applied for several credit cards but I keep getting turned down. Is there another way for me to build up my scores?

Answer: Dear Reader,

Establishing credit history for the first time can seem like a daunting task. Your lack of history tells creditors that you have no recent experience with credit cards and loans, as a result, they may not want to risk approving you. 

So how do you break the cycle? Here are a few tools you can use to get started with building up your credit.

Open a secured credit card

A secured card is a credit card you qualify for by making a cash deposit. Since you deposit your own money, you don’t need good credit to qualify. The deposit for these cards is equal to the credit limit, which will typically range anywhere from $200 to $5,000. You can usually find secured credit cards through credit unions.

Aside from the deposit, these cards work just like any regular credit card. Your lender will usually report your balance and payment information to one or more of the three major credit bureaus (Equifax, Experian, and TransUnion) and it will show up on your credit reports. By making your monthly payments on time and keeping your balance low (you should aim to pay it off each month), you will start to build up your credit scores. 

After a set amount of time, your creditor may upgrade the card to a regular credit card and refund your initial deposit. They may also increase your card limit at that time, which will help you further improve your scores.

Use a credit-builder loan

While it’s not as optimal as a secured credit card, a second option for building up your credit scores is to take out a credit-builder loan. These loans work like regular loans but in reverse: you make payments for roughly six to 18 months, and then you receive the loan funds at the end of that period.

Some financial institutions (usually credit unions) offer these loans to help people with no credit history. To find the best credit-builder loan for you, compare options from a few different credit unions and look for the lowest interest rates and an affordable payment. 

Become an authorized user

One of the easiest ways to establish credit is to become an authorized user on another person’s credit card. All you have to do to become an authorized user is have them add your name to their account. 

When you’re an authorized user, the account’s activity will be reported on your credit reports. This can help you benefit from the other person’s positive payment history, length of credit history with the account and more. 

However, it could be harmful if the primary card-holder misses a payment. For that reason, you’ll want to make sure the account is in good standing and the primary card-holder is responsible before having them add your name.

Practice healthy credit habits from day one

If you do open a secured credit card or a credit-builder loan, wait a year before applying for a regular credit card again. Additionally, make sure to use any cards or loans strategically. This includes making all of your payments on time and avoiding any debt you can’t afford to pay back. 

If you’re looking for personalized guidance on how to start building credit, you can always schedule an appointment with an NFCC-certified credit counselor. The counselors at our member agencies are ready to provide you with all the tips you need for building credit and establishing healthy financial habits!

Sincerely,
Bruce McClary

Bruce McClary is Senior Vice President of Memberships & Communications at the National Foundation for Credit Counseling.