How to build credit
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How to build credit
Get started as an authorized user, or with credit-building loan or secured credit card.
by Erin El Issa Senior Writer Personal finance, data analysis, credit card Erin El Issa writes data-driven studies about personal finance, credit cards, travel, investing, banking as well as student loans. She is fascinated by numbers and strives to simplify data sets in order to help people improve the quality of their lives financially. Before she became the Nerd in 2014, she worked as an accountant for tax purposes and freelance personal finance writer. Erin’s work has been cited as a result by The New York Times, CNBC and on the “Today” program, Forbes and elsewhere. In her spare moments, Erin reads voraciously and struggles to keep her two children entertained. Erin is from Ypsilanti, Michigan.
and Bev O’Shea personal finance writer | MSN Money, Credit.com, Atlanta Journal-Constitution, Orlando Sentinel Bev O’Shea is a former NerdWallet authority on consumer credit, scams and identity theft. She holds a bachelor’s degree in journalism from Auburn University and a master’s in education from Georgia State University. Prior to joining NerdWallet she worked for newspaper publishers, including daily ones, MSN Money and Credit.com. Her work has been featured on The New York Times, The Washington Post, the Los Angeles Times, MarketWatch, USA Today, MSN Money and other publications. Twitter: @BeverlyOShea.
Feb 2nd Feb 2023
Edited by Kathy Hinson Lead Assigning Editor Personal finances, credit scoring managing money and debt Kathy Hinson leads the core personal finance team at NerdWallet. Previously, she spent 18 years working at The Oregonian in Portland in positions such as copy desk chief and team leader for design and editing. Her previous experience included news and copy editing at various Southern California newspapers, including the Los Angeles Times. She graduated with a bachelor’s in mass communication and journalism at the University of Iowa.
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Credit building can be a challenge. If you don’t have credit history, it’s hard to secure a loan, a credit card, or even an apartment.
How are you going to prove a track record of responsible payment if no one will give you credit in the first place?
Know how your credit is evaluated
Find your free score and the variables that affect it, plus insights into ways to build your score.
Several tools can help you :
If your goal is to obtain credit then you can start by using a secured credit card or co-signed cards, or ask to be a part of the card of someone else.
If you are looking to build credit without a credit card, try a credit-builder loan, secured loan or a co-signed loan. There are other ways to use telephone, rent, and utility payments to create credit. Some of these options are absolutely free, while some require a fee.
Here’s a look at credit-building tools, and how you can use these tools to earn .
Take advantage of a secured credit card
If you’re building your credit score by hand, you’ll have to begin with the use of a secured card . A secured card is backed by a deposit in cash that you make upfront; the deposit amount is usually identical to the credit limit. The minimum and maximum amount you can deposit is determined by card. Many credit cards have a minimal amount of $200. Certain companies, like Avant, Deserve and Petal are now offering cards that don’t require the requirement of .
You’ll use the card like any other credit card: Buy items, pay prior to or on the due date, and pay interest if you don’t make your payment in the full amount. Your deposit will be returned when you close the account.
NerdWallet frequently evaluates and ranks various options.
Secured credit cards don’t have the intention to be used for a long time. The purpose of secured cards is to help build credit so that you can qualify for an unsecured card, which is a card without a deposit and offering better advantages. Choose a secured card with a low annual fee and ensure it is reporting information about your transactions to all three bureaus , Equifax, Experian and TransUnion. Your credit score is constructed by the information you get from your credit reports. Cards that report to all three bureaus allow you to create more complete credit histories.
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Get a credit-builder product and a loan
A is exactly the word you’re hearing Its sole function is to assist people in building credit.
Typically, the money you borrow is kept by the lender in an account and it isn’t released till the loan is repaid. It’s a forced savings program that is similar to a savings account where your repayments are reported to credit bureaus. These loans are typically offered by credit unions or community banks. They also offer them online, as does .
offers a $500 line of credit, which is specifically designed to be a credit-building tool.
Another option is to have funds in deposit at the credit union or bank inquire about secured loan to build credit. With these, the collateral is the money you have in your account or in a certificate of deposit. The interest rate is generally slightly higher than the interest you’re earning on the account, but it may be significantly lower than the alternatives.
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Use a co-signer
It is also possible to obtain a loan or a credit card by co-signing with co-signers. Be sure you and the co-signer understand that the co-signer will be responsible for the full amount owed if you don’t pay.
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Become an authorized user
A relative or other person may want to add you as an on their card. In this way, the card’s payment history to your credit files and you’ll need a primary user who has an extensive history of making payments on time. Furthermore, being added in the role of an authorized user can reduce the amount of time it takes to generate the . This is especially beneficial in order to build credit.
It is not necessary to use or even own the credit card in order to gain the benefits of being in the position of an authorized user.
Request the primary cardholder to find out whether the card issuer reports authorized user activity to the credit bureaus. That activity generally is reported, but you’ll want to confirm that it is reported, otherwise your efforts in building credit may be wasted.
You should come to an agreement about whether and how you’ll utilize the card before being designated to the authorized users list and be prepared to pay your share if that’s the deal you reach.
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Get credit for the bills that you have to pay
like Rental Kharma like Rental Kharma and LevelCredit like Rental Kharma and LevelCredit, take a charge you are already paying and add it to the credit file, assisting to build a positive history of on-time payments. Some credit scores do not take the payments into consideration however, some do and that may suffice to secure a loan or credit line that firmly establishes your credit score for all lenders.
offers a way to have your utility and cell phone bills reflected in your credit report at this credit bureau. The impact is only applicable to your credit report with Experian — and any credit scores calculated on it.
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Maintain credit-building habits that are good for you.
and a record of punctual payments.
To be eligible for a FICO score, you must have at least one credit card which has been open for six months or longer and at least one creditor reporting your activity to the credit bureaus in the past six months. A , from FICO’s biggest rival, is able to be created more quickly.
Use these credit-building tips to build your score:
Try to make your payments on time and pay at least the minimum if you are able to . Making your on time for credit cards or loan installments on time, every time is the most important thing you can do to build your score. If you’re able to spend more money than you must amount, this can be beneficial to your score.
If you are using credit cards, ensure that your credit utilization low -which is the amount of your credit limit you use. We recommend keeping your credit utilization at or below 30% for all credit cards whenever possible. The lower the utilization, the better it is for your credit score.
Beware of applying for multiple credit accounts at the same time. Applications for credit may result in a small, temporary drop of your scores. Multiple applications can cause significant damage. NerdWallet recommends spacing applications by six months, if you are able to, and researching the for the requirements prior to applying. Note that multiple applications for auto loans or mortgages in a short span of time will be combined such as ” .”
Keep your credit card accounts active. If you do not have compelling reasons to close your account, like a high annual fee or poor customer service, you should consider keeping it open. You can also explore downgrading it or transferring your credit limit to another card. The closing of an account could hurt the credit utilization of your account and decrease your average account age.
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Check your credit scores and reports
A credit report provides a record of how you’ve used credit previously. Your credit scores will tell you how you’ll handle credit in the near future, using the information in the credit report. You should keep an eye on your credit reports to look for mistakes and to observe your credit-building efforts yield results.
NerdWallet provides a service from TransUnion. You can also use educational tools, such as NerdWallet’s to understand how your financial actions can affect your score.
Many credit card issuers offer FICO scores on customers’ monthly statements and allow online access to. Certain card issuers provide free scores to anyone whether cardholder or not.
Request your credit report and review them for any mistakes and discrepancies. Through December 2023, you can check your reports for free every week by . Dispute any credit report errors you discover that could lower your score.
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About the authors: Erin El Issa is an expert in credit cards and writer on studies at NerdWallet. The work she has written for NerdWallet was featured in USA Today, U.S. News and MarketWatch.
Bev O’Shea is a former credit writer for NerdWallet. Her work has appeared in publications such as the New York Times, Washington Post, MarketWatch and elsewhere.
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