How do I start building credit?

To start building credit, begin by establishing some financial accounts in your name and using them to build positive payment history — a track record of paying your bills on time.

You can also build payment history by paying your student loans or auto loan as promised, becoming an authorized user on a trusted person’s credit card, opening a credit-builder loan, or signing up for a plan that reports certain bill payments to a credit bureau.

Before you get started, a good first step is to check with the three main credit bureaus to see if you have credit reports yet. Even if you’ve never had a credit card, you might already have a credit report with at least one of the main credit bureaus: Equifax, Experian or TransUnion. You can check your Equifax and TransUnion reports and VantageScore® 3.0 credit scores for free any time on Credit Karma. You can check your Experian credit report (along with Equifax and TransUnion) once a week for free at annnualcreditreport.com.

• Step 1: Establish accounts and build payment history
• Step 2: Keep building your credit over time
• What’s next? Choose your credit-building strategy
• FAQs: How to start building credit

Step 1: Establish accounts and build payment history

Establishing credit begins with opening accounts that report your payment activity to the credit bureaus, so every on-time payment you make works in your favor. The goal isn’t to open as many accounts as possible — it’s to have at least a couple that actively report on-time payments. Consider the five approaches below based on what fits your situation best, and keep in mind you can use more than one strategy.

1. Report bill payments

If you have no credit or a thin credit file, you can jumpstart your credit with bill payment reporting. A bill payment reporting service lets you use the bills you already pay, like rent, utilities or cellphone payments, to establish credit history with at least one credit bureau.

You may also hear this referred to as using “alternative data” to build credit because it doesn’t involve credit cards or traditional loans.

• What to do: Look for a no-cost service that reports the kinds of bills you already pay.
• Tip: Some services let you add historical payment history, which can boost your progress (the longer your payment history, the better).
• FYI: Credit Spark™, Credit Karma’s free bill reporting tool, lets you report up to five eligible billing accounts to TransUnion. You can also potentially add three months of past payments (or more in some cases). Most people see eligible bills added as new accounts on their TransUnion report within seven days.

Bill payment reporting pros and cons

Pros

• No new debt or credit applications required
• May be able to add past payment history
• Results can be quick, with accounts added in just days, in some cases

Cons

• May only report to one bureau
• Not all bills are eligible for reporting
• Some services charge for adding past payment history or reporting to multiple bureaus

2. Become an authorized user on someone else’s card

If you’re not ready for a credit card or don’t want one, you can establish payment history by becoming an authorized user on a trusted family member’s or friend’s credit card.

As an authorized user, you receive a credit card in your name for their account. The credit card company may then start reporting the account’s information to the credit bureaus under your name, too. The result: You can benefit from the primary cardholder’s past and present payment history without taking responsibility for the debt.

Keep in mind that company policies differ, so find out if the card issuer reports authorized users to the credit bureaus. If it doesn’t, becoming an authorized user won’t help you build credit.

And remember that while you’ll benefit if the primary cardholder pays their bills on time and maintains a low credit card balance, your credit could be hurt if they pay late or have a high credit utilization rate. Choose someone you trust who has strong, consistent credit habits.

Authorized user pros and cons

Pros

• No credit application or credit check required on your part
• Can benefit from a long, positive account history immediately
• No debt responsibility — you don’t have to use the card

Cons

• Your credit depends on someone else’s behavior
• Not all card issuers report authorized users to the bureaus
• Can damage your credit if the primary cardholder misses payments or carries high balances

3. Open a credit-builder account

Another way to build credit is by opening a credit-builder account, which is designed specifically for people starting out or rebuilding their credit. There are a couple different types of credit-builder accounts.

With credit-builder loans, instead of receiving funds right away like with traditional loans, your loan amount gets set aside in a savings account until you make monthly payments for a period of time roughly totaling the amount of the loan. As you make payments, the lender reports them to help you build credit. Once you’ve made all your payments, the funds are released to you.

Keep in mind that credit-builder loans may come with an application fee, and you may be charged interest on the loan. But your security deposit may also accrue interest, which might help offset some of the costs.

Credit Karma offers a free Credit Builder plan, which works slightly differently. When you open Credit Builder, Credit Karma opens a line of credit and a locked savings account in your name. Each pay period, you choose how much to save — that amount is transferred from your line of credit to your locked savings account, and you pay off the outstanding balance.

Every payment is reported to all three credit bureaus. Once you’ve saved $500, that amount is transferred to your Credit Karma Money™ Spend account for you to use. There’s no fixed end date — keep it active as long as you’d like to keep building.

Credit-builder loan pros and cons

Pros

• Structured, fixed payments build consistent payment history over time
• Widely available through credit unions and online lenders
• Funds are released to you in full once the loan is paid off

Cons

• You pay interest throughout the term for the credit-building benefit
• Fixed payment schedule offers little flexibility if your finances change
• Early withdrawal from the locked account may come with penalties

Credit Karma’s Credit Builder pros and cons

Pros

• Completely free — no interest or fees to build credit
• Flexible minimum (as little as $10/month); no fixed end date
• Reports to all three credit bureaus and builds savings simultaneously

Cons

• Requires an active Credit Karma Money™ Spend account to participate
• Line of credit is capped at $1,000, limiting savings growth potential
• Savings transfers only happen in $500 increments, not continuously

4. Consider a credit card: Secured, student or retail

A credit card can be a practical tool for building credit when you’re starting out, as long as you don’t take on more debt than you can pay off monthly.

Look for cards that don’t charge an annual fee or other fees just to have the card. Avoid carrying a balance so you don’t have to pay expensive interest. Paying off your card in full each month is a great way to build positive payment history, with every payment reported to the credit bureaus.

Here’s a quick breakdown of cards that work well for beginners.

No matter which credit card you apply for, try to use it only to buy what you can afford to pay off right away. Check out our tips for getting and using your first credit card.

5. Make the most of student loans or auto loans

While we don’t recommend taking out loans just to build credit, if you already have a student loan, auto loan or other installment loan, the good news is that you can use it to build positive payment history.

Make your payments on time every month since those payments get reported to the credit bureaus and it helps you build the foundation of a solid credit profile. If you’re ever worried about keeping up with your payments, reach out to your lender or loan servicer as soon as possible. They may be able to offer a deferred payment option or other debt relief so you can protect your credit while getting back on track.

Step 2: Keep building your credit over time

Once you establish your credit foundation, you can work on strengthening it. Building strong credit is an ongoing process that will help you qualify for the best offers on credit cards, loans and a mortgage as your credit profile matures.

Here are some important credit score factors and tips to keep your credit healthy.

• Safeguard your payment history. Payment history is the most influential part of your credit scores across multiple credit scoring models. Set up reminders for due dates. Adding autopay for at least your minimum payments can prevent an unintended missed payment that hurts your scores and stays on your credit reports for seven years.
• Keep credit card debt low. Your credit card utilization — how much of your available credit you’re using — is almost as important as payment history for your credit scores. Experts recommend keeping your utilization at least below 30%, and ideally below 10%.
• Ask for a credit limit increase. If you develop strong payment history, your credit card issuer may grant a request for a higher credit limit. With a higher credit limit, you can lower your credit utilization even more, which can help improve your credit.
• Consider your mix of accounts. Having a mix of credit accounts (cards and loans) can positively affect your credit scores, but it’s a smaller factor. It’s not a good idea to open new credit just to improve your mix. Instead, this usually happens naturally over time as your credit matures.
• Limit new applications. Credit scores also consider your recent applications for new credit. Many new applications in a short period of time can be a red flag to lenders. 
• Monitor your credit reports and scores. Keeping an eye on your credit reports can help you spot any errors or fraud that could lower your credit scores. If you spot an error, you’ll want to dispute it with the credit bureaus to fix as soon as possible.

What’s next? Choose your credit-building strategy

The right credit-building strategy depends on your personal situation. You may not have a trusted relative you can approach about becoming an authorized user, but do you make a monthly cellphone payment you can report to a credit bureau to build payment history? Can you spare $200 to open a secured credit card?

As you continue your credit-building journey, focus on the factors that tend to have the greatest impact:

• Make on-time payments
• Keep credit utilization low
• Maintain a healthy credit history length
• Show a mix of types of credit accounts
• Limit new credit applications to what’s truly necessary

Monitor your progress and check your credit reports regularly to confirm the information on them is accurate. As your credit matures, you may want to try different tactics like taking out a cash back credit card or auto loan.