How to Build Credit with No Credit History

Planning to get a mortgage, rent a home, or apply for a rewards credit card? Mortgage lenders, credit card issuers, and landlords usually evaluate an individual’s ability to manage credit and make timely payments by checking their credit history. But when an individual has no previous credit history, it can be harder for them to secure loans, credit cards or apartments. Fortunately, there are steps people can take to get started on their credit journey and actively build a good credit history.  Here is a guide on how to build credit.

Get a Secured Credit Card

What it is: This type of card requires a refundable security deposit when the account is opened.

How it works: The amount of money that is deposited acts as the credit cardholder’s credit limit. The deposit lowers the risk of approval for the lender. For cardholders who miss payments, the issuer uses the deposit to pay off the balance.

What to know: Secured credit cards are commonly issued by banks and credit unions. They typically can be upgraded to unsecured cards after a period of exemplary credit use. The key to making a secured credit card work as a tool for building credit is to make on-time payments.

Become an Authorized User

What it is: A cardholder, with a hopefully good credit history, can add an authorized user to the account. The authorized user will be able to use the credit card, but payment responsibility for the account will not fall on them.

How it works: The authorized user is able to build credit history because the timely payments made by the primary holder are now reflected as part of the user’s credit history. This is an efficient way to build credit history.

What to know: Make sure to select someone who is fiscally responsible because if the primary cardholder misses a payment on the account, then the authorized user’s credit will be hurt.

Get a Credit Builder Loan

What it is: This is an installment loan that helps borrowers build their credit history, but it differs from a personal or secured loan, because the money isn’t provided upfront.

How it works: The lender issuing the credit builder loan places the funds in a certificate of deposit or savings account. The borrower meanwhile makes monthly payments toward “repaying” the loan. The lender reports these monthly payments to credit bureaus so the borrower can establish credit and build a good history. Once the borrower has made the required number of payments, they’ll receive the amount previously set aside along with any interest it attracts.

What to know: While the idea of getting the loan funds back with interest at the end of the term sounds lucrative, borrowers will typically pay more interest than they earn. Additionally, it takes around six months (of continuous payments) for people with no credit history to successfully be assigned a FICO® Score. Borrowers should keep this timeline in mind when they determine their ideal credit builder loan amount and term.

There are other ways to build a credit history, such as using an rent reporting service, applying for a store credit card and getting a co-signed loan or credit card.

When it comes to building your credit, careful research and assessing which option is right for you is essential.

Disclaimer: This content is sponsored by myFICO and is provided for informational purposes only. The information shared here is not intended to serve as financial, legal, or credit-related advice. Readers are encouraged to consult with their personal financial advisors or credit professionals to assess their specific situation. To learn more about myFICO’s services, including credit scores and monitoring tools, please visit the myFICO website or reach out to a myFICO representative.

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