How to build credit from scratch

Young woman wondering how to build credit from scratch Image: Young woman wondering how to build credit from scratch

In a Nutshell

You’ve got to start somewhere. If you’re wondering how to build credit from scratch, consider applying for a credit card, taking out a student loan or asking your parents for a hand.

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For many people, building credit from scratch is like the chicken-and-egg conundrum: You need good credit to qualify for many of the best credit cards, but how can you establish credit without a credit card?

If you’re trying to figure out how to build credit, we’re here to help.

If you don’t feel comfortable applying for a credit card just yet, keep in mind there are plenty of other ways to build credit without a credit card. Here are the four credit-building options covered in this article.

  1. How to build credit with a credit card
  2. How to build credit with help from mom and dad
  3. How to build credit without a credit card
  4. How to build credit responsibly

1. How to build credit with a credit card

If you’re just starting out and building your credit from scratch, consider applying for a student credit card or a secured credit card designed for people with little or no credit.

How does a secured credit card work?

We recommend starting with one of these entry-level credit cards, which generally don’t require a long or robust credit history for approval. Here’s a breakdown of the various types you may want to consider:

  • Secured credit cards require a cash deposit that serves as collateral if you miss a payment. If you can, find a card that doesn’t charge an annual fee. And make sure the credit card company reports to all three major credit bureaus, which can help you build or rebuild credit with responsible
  • Student credit cards give students and young cardholders the chance to build credit — and they may even come with promotional offers and rewards. One potential drawback is that they typically have lower credit limits and higher interest rates.
  • Store credit cards not only help consumers save money at their favorite stores, but they may also give those with little or no credit a chance to prove they can handle money responsibly. Beware of the high interest rates these cards may charge if you carry a balance.

At a glance: Some of our favorite cards for building or rebuilding credit

Secured credit card Capital One® Secured Mastercard®
Student credit card Citi ThankYou® Preferred Card for College Students

2. How to build credit with help from mom and dad

Your parents might be willing to lend you a hand by making you an authorized user on one of their credit cards, or co-signing a loan with you. Of course, a close friend or another family member may also be able to help.

Authorized user

If your parents make you an authorized user on their rewards credit card, you may both benefit. You’ll have a chance to build your credit, while mom and dad may rack up points or cash back on every dollar you spend.

But be careful: Some credit cards charge an annual fee for authorized users.

The downside (for your parents, at least) is that they’ll be responsible for repaying the money you spend if you don’t. And if that causes them to miss a payment or rack up a lot of debt, it could hurt both of your credit scores.

What you should know about being an authorized user on a credit card


Whether you’re applying for a credit card, student loan or buying your first car, your parents might consider co-signing, which may increase your chance of qualifying if they have good credit.

Unlike the case with an authorized user, you’ll both be on the hook for repaying the loan.

Keep in mind, if you’re under 21, according to the Credit Card Accountability Responsibility and Disclosure (CARD) Act of 2009, you either have an adult co-signer or show that you make enough money on your own to repay any money you spend on your credit cards.

3. How to build credit without a credit card

Student loans

College graduates who make on-time student loan payments may boost their credit. But keep in mind, late payments may have an adverse effect on your scores. Consider setting up automatic payments, so you don’t forget.

One more thing to watch out for: Taking out student loans may place more pressure on your overall finances. The more you owe on a student loan, the less money you’ll have on hand to repay other lenders.

Auto loans

Buying a car is another way to build credit, if you make on-time payments on your auto loan. Keep in mind, if you pay cash, you may save money on interest, but it won’t help your credit.

This is one way even high school students may be able to jumpstart this credit history. Of course, it doesn’t make sense to buy a car solely for the sake of building your credit, so make sure it’s a necessary purchase before asking the dealer to hand over those keys.


Homeowners can build credit by making on-time mortgage payments.


In some cases, renters may also build credit by making on-time payments. If your landlord doesn’t report your positive payment history to the credit reporting agencies, check out services like RentTrack and PayYourRent.

And don’t stop there: Ask your utilities company to report your on-time payments, too.

Cellphone payments and “alternative data”

Some lenders are looking at using alternative forms of data when assessing your creditworthiness (such as your rent, cable TV and cellphone payments). The CFPB is now looking at the risks and benefits of using alternative data sources in making lending decisions.

Currently, it is optional for these companies to report your information, so it may help to ask them.

Personal loans

Personal loans and peer-to-peer loans may help low-income customers build credit. But they oftentimes carry high interest rates, particularly for customers with bad credit or no credit.

Secured loans

A secured loan, also known as a credit-builder loan, works like a secured credit card. You pay a deposit upfront, which is used as collateral if you default on your payments.

4. How to build credit responsibly

Now for the good news: If you’re just beginning your credit journey, you may have more credit-building options than you think.

Getting approved for a credit card is only the first step. Here are a few recommendations to keep in mind as you begin your credit journey:

  • Don’t pay interest. Contrary to popular belief, you don’t need to carry a balance to build credit. So consider paying off your entire balance each month to avoid interest charges.
  • Don’t miss a payment. Late payments can stay on your credit reports for years and wreck your credit. So do your best to make each payment on time, even if you can only afford the minimum payment.
  • Don’t spend too much. While you might be excited about breaking in your new credit card, try not to use more than 30 percent of your available credit. That means if you have a $1,000 credit limit, try not to spend more than $300. Keeping your credit utilization rate low can help improve your overall credit health.

It’s important to remember you’re not alone. According to the Consumer Financial Protection Bureau, or CFPB, an estimated 45 million Americans may not have credit scores. That’s a huge number, and it includes a variety of individual cases. Some people simply have no credit history, while others may have a credit history that’s gone stale or isn’t yet sufficient to produce a score under most scoring models.

Bottom line

Unfortunately, it may be easier to damage your credit than to fix it. So look at this new beginning as an opportunity to form good habits and start your credit history off right.

Still don’t know where to start? Sign up for an account with Credit Karma and get your free VantageScore 3.0 credit scores from two major credit bureaus. It’s always free and there’s no credit card required, ever.

About the author: Tim is a personal finance writer and credit card expert at Credit Karma. Growing up, Tim was apprehensive about credit cards because his parents struggled to get out of debt. Not wanting to fall into the same trap, … Read more.