As you start to pursue your financial goals, you realize the importance of building good credit. From getting a credit card to buying a car or a home, good credit can be super helpful in reaching life milestones.
We aren’t automatically given a good credit score right off the bat, and it isn’t something we can build overnight. That’s why working on it as soon as you can is smart and forward-thinking.
In This Article
How to Start Building Credit
There are several ways to start building credit for yourself. If there hasn’t been already, there will most likely come a time where someone needs to check your credit, whether you’re making a big purchase or applying for a credit card. There’s a lot of information out there regarding credit building, however, starting with the basics along with staying away from bad credit habits is a great place to begin. If you’re buying a new car or trying to get a mortgage, credit reports and scores are used to evaluate your creditworthiness and establish your borrowing terms.
Some of the best ways to bulk up your credit history and establish a score are to apply for a secured credit card, become an authorized user on another person’s credit card or loan, and pay off your balances in full every month. But, we’ll get to those items in more detail in just a bit.
Building a good credit score can take time, but the benefits of doing so are significant. Even if you don’t expect to apply for credit anytime soon, it’s important to start working on it now so you can build a good score for when you do need it.
Building Credit From Scratch
A great way to establish credit is to prove that you are responsible with borrowing money and paying it back, whether it’s a loan or credit card. Building credit from scratch puts you in the best position since you have the opportunity to build a great credit score from the ground up, instead of already having poor credit to work with and having difficulties rebuilding your score.
If you’re starting from square one, you might be thinking “Where exactly do I start?”. This is a common question and the exact starting point will differ from person to person. This is dependent on a number of factors such as if you have an eligible co-signer, what your financial goals are, and what will work best with your current situation. Knowing the factors that influence credit scores will help you understand what is within your power when it comes to building a good score.
What Is a Credit Score?
When you think about a credit journey, one of the first things that may pop up is your credit score. A credit score is a number that represents your history of borrowing money, including your debt and payment history. Your score is used to help potential lenders determine whether they can trust you to borrow money and repay it in a timely manner, generally through a loan or credit card.
Your credit score is a number between 300–850 and the higher the score, the better you look as a borrower to potential lenders. Credit scores can vary greatly, and when you’re first getting started, yours might not be exactly where you want it. But that’s OK! There are plenty of ways to work toward a number that will make you feel more confident in your financial wellness.
How Are Credit Scores Calculated?
Credit scores can be calculated using different credit scoring models. Your score will vary based on the model being used. The most recognized credit score is the FICO® Score (created by the Fair Isaac Corporation). VantageScore is another common model, made by the 3 major credit bureaus (Experian, Equifax, and TransUnion).
No matter which model is being used, credit scores take a variety of factors into account, including:
- Payment history: A long history of on-time loan and credit card payments will help you secure a better score. If you miss a payment, you can expect your score to take a hit.
- Credit utilization: This is how much of your available credit is being used. A high utilization, or heavy credit usage, can signal to borrowers that you might be overstretched and unable to repay based on what you’ve currently borrowed.
- Length of credit history: Future lenders like to see that you’ve had a history of making on-time payments. The longer your history, the better.
- Credit inquiries: Each time a potential creditor checks your credit history (a “hard” inquiry), your score will drop a few points. Don’t worry, it will recover. But you’ll want to avoid applying for too many things at once and having too many hard inquiries on your account at a time.
- Types of credit: Having more than one type of credit can help boost your score in the long run. When you’re just getting started, you may just have one type of credit, but eventually, that will likely grow.
Keeping these factors in mind can help you build, repair, and maintain a good credit score for years to come.
5 Credit Building Tips
Now that you know what’s important for a good credit score, it’s time to start building it! Here are 5 tips you can work into the beginning of your credit journey.
1. Become an Authorized User
An easy way to start building your credit is to become an authorized user on someone else’s credit card. If you have a family member or partner who is willing to add you to their card as an authorized user, you’ll get their credit history added to yours.
Make sure this person is trustworthy and has a solid credit history. You’ll get your own credit card on the account and be able to make charges. But, you’ll also be responsible for missed or late payments and other credit issues if they arise.
2. Apply for a Credit Card
A great way to start building credit is by signing up for a new credit card. In the beginning, your options might be limited. However, there are a lot of cards out there designed with people like you in mind — and they’re ready to help you start from scratch.
Some options to consider when you’re just getting started include:
- A secured card: With a secured credit card, you’re required to make a deposit that is held as collateral. For example, for a secured credit card with a $500 limit, you’d need to make a $500 deposit before using the secured card. That way, if you’re unable to pay your outstanding balance, the credit card company can keep that deposit.
- Co-sign: If you have someone who is willing to co-sign on a credit card with you, who already has good credit, can help you get approved without having credit yourself. When someone co-signs a credit card with you, you are the primary cardholder. But, the co-signer shares responsibilities, and missed payments could cause their credit score to drop too.
- Interest rates and annual fees: Another thing to keep in mind when applying for new cards are interest rates and if the credit card has an annual fee. These extra charges could hurt you long term if you sign up for a card with a high interest fee or yearly fee, on top of your regular payments. Weigh your options and think about what credit card choice makes the most sense to you.
3. Make On-time Payments
Your payment history plays a big role in your credit score. That’s why it’s important to get in the habit of making on-time payments, and aim to pay your balance off in full each month.
With credit cards, utility bills, and other charges, look into automatic bill pay. This can help you avoid forgetting a payment and sometimes can get you a better interest rate.
4. Get Credit for the Bills You Pay
You probably already pay regular monthly bills — like for your phone, rent, or other various utilities. Unfortunately, you’re probably not getting credit for making those payments on your credit report.
With the Chime Credit Builder Visa Credit Card, you can earn credit just for paying your regular bills on time. Instead of paying your monthly bills out of your checking account or with cash, use your Credit Builder card instead. For this card there is no credit check, no security deposit, no interest, as well as no annual fees.
At the end of each month, the Credit Builder card reports your monthly balance from the money in your Chime Spending Account to the major credit bureaus. Consistent use can build your credit and payment history, and create more credit diversity in your report.
5. Check Your Credit Report
Because your credit report is so important to your financial health, you’ll want to make sure that it only includes accurate information. That’s why it’s important to regularly check the details listed in your credit history and make sure there are no errors. If there are errors, you’ll need to dispute them so they don’t bring down your credit score.
It’s also motivating to check your credit score and watch all your hard work pay off! Give yourself a pat on the back each time you get a credit score update and see your number climb. You can get a free copy of your credit report to check once each year using AnnualCreditReport.com.
6. Weigh the Pros and Cons of Opening New Accounts
While opening up new accounts can help grow your credit history, it can also cause your credit score to fluctuate. It’s recommended you don’t open a ton of new credit accounts too quickly. Opening up multiple accounts can lower your average account age. This can have a large impact on your credit score, causing it to drop.
It’s natural for your credit score to fluctuate as you open and close new credit accounts. However, you should be aware of too many changes in a short period of time. Weigh the pros and cons of taking on more debt and consider the impact it will have on your credit-building goals.
Best Ways to Start Building Credit
Again, some of the best places to start are with a credit card with no annual fees or becoming an authorized user on an account with a person you can trust. These are just initial steps you could take to get the ball rolling, and once you start building your credit, you will be able to make bigger financial decisions that will benefit your life and money goals.
When you’re first starting on your credit journey, it can feel like you have a long way to go. You’re not going to build good credit overnight. But by putting in time to use these tips and practice solid financial habits, you’ll be able to build the credit history you need over time!
Looking to learn more about how to start your credit journey? Check out some frequently asked questions below.
What does your credit score start at?
Your credit score doesn’t start at 0. The lowest it can start at is 300. Your credit is non-existent until a lender, card issuer, or other financial institution checks your credit. It’s rare that your credit will be at a 300 to start, unless you’ve been practicing bad credit habits from the beginning.
Can I start my credit over?
You cannot restart your credit. However, you can take steps to rebuild your credit. Though it takes time, it will pay off to practice good credit-building habits.
How quickly can I establish credit?
It takes about 6 months of regular credit activity for your file to become thick enough to have a credit score calculated. For a fair credit score, it typically takes 6 months of on-time payments, and earning a great score takes longer.
How long do credit checks stay on your credit report?
Hard inquiries stay on your credit reports for 2 years before they fall off. If you have legitimate hard inquiries, you’ll likely need to wait until the 24-month period is over to see them disappear.
Long story short — starting your credit journey may seem daunting, but there are many strategies you can use to work in your favor. The most important thing is to be patient. Boosting your credit score takes time. With time, patience, and good habits, you’re sure to have a positive credit journey ahead.