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Building a Credit Score From Scratch: 5 Easy Steps

Building credit can be tricky. Without a credit card, it's hard to build credit history. Without credit history, it's hard to qualify for a credit card. But if you start at the bottom and use credit responsibly, you can slowly work your way up to an excellent credit score. Just follow the Nerds' step-by-step plan to build a solid credit history.

Step 1: Understand the factors that influence your FICO score

The FICO score is the most commonly used credit scoring model. Your FICO is made up of these five factors:

  • Payment history (35%).
  • Credit utilization (30%). 
  • Length of credit history (15%).
  • Types of credit in use (10%).
  • New credit (10%).

The data that influences these factors comes from your credit report. You have credit reports from each of the three major reporting agencies — Experian, Equifax and TransUnion — and you have a FICO score from each as well.

Step 2: Learn the guidelines for building credit

Lenders use your credit score to determine your financial trustworthiness. Practice these good credit habits to build your score and prove that you're creditworthy:

  • Make 100% of your payments on time, not only with credit accounts, but also with other accounts, like your utility bills.
  • Keep your credit card debt low. Don't let your debt balance exceed 30% of your credit limit at any time.
  • Use your card regularly. Credit accounts that go unused may be closed by issuers after a certain period of time. When an account is closed, your credit utilization will go up and your length of payment history may go down.
  • Keep accounts open for as long as possible. Unless one of your unused cards has an annual fee, you should keep them all open and active for the sake of your length of payment history and credit utilization.
  • Avoid opening too many accounts at once; it will lower your average account age.
  • Check each of your credit reports annually for errors and discrepancies.

Step 3: Know how to check your credit reports and scores

You're entitled to one free credit report a year from each of the three bureaus. Many sites offer you free reports, but the legitimate site is AnnualCreditReport.com.

You can purchase your FICO score(s) for a small fee. We recommend purchasing your scores directly from the three major credit bureaus.

Step 4: Get a credit card for no or low credit

OK, now that you understand the factors that make up your score and how to influence them in a positive way, it's time to actually start building credit with a credit account. You have a few options for your first credit card:

Apply for a secured credit card

If you're flying solo, you'll likely need to start with a secured credit card. A secured card is backed by a cash deposit that's usually equal to your credit limit. Your cash deposit is used as collateral, so don't treat your secured card like a prepaid debit card.

Get a cosigner on an unsecured card

If you want to skip ahead to an unsecured credit card, you'll need a co-signer. Remember, your co-signer's credit may be tarnished if you don't use your card responsibly, so make your payments on time and don't max out the card.

Become an authorized user

A family member or significant other may be willing to add you as an authorized user on his or her card. As an authorized user, you'll enjoy access to a credit card and you'll build credit history, but you aren't legally obligated to pay for your charges.

Step 5: Be patient

If you're using your credit card responsibly and following our guidelines above, all that's left to do is be patient. Building an excellent credit score takes time. In the meantime, enjoy watching your score creep up from nothing to the 700-800s.


Produced by NerdWallet




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