How to build your credit from scratch

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How to build your credit from scratch

By JENNA LEE

Every credit journey has to begin somewhere. And while it may seem impossible to begin your own when creditors keep denying your applications due to your lack of credit, generations of consumers have proven that it IS possible to build your credit from scratch. Here are some tips to get you started:

Consider getting a credit card

If you were denied credit in the past, it may have been because the cards you applied for required a high credit score for approval. When you're just beginning to build your credit, consider starting off small and looking for options available for those with little or no credit:

  • Secured credit cards can be great for building credit because almost any applicant can qualify for them, as they're backed by mandatory cash deposits. In other words, the cardholder is required to make a deposit to help remove the risk of default for the issuer. Just be sure that the company reports the card to the credit bureaus so your positive payment history can help build your credit file.
  • Student credit cards can be great options for young consumers who are just starting to build their credit history. These cards typically offer higher acceptance rates and may even come with promotional offers and rewards. The drawback is that they usually have lower credit limits and higher interest rates.
  • Retail credit cards are another option commonly used to build credit. While they're usually easy to get and can help consumers save money at their favorite stores, these cards often have low credit limits and interest rates that are considerably higher than non-retail cards.
  • Asking to become an authorized user on a close family member or friend's credit card is also a great option to consider. Since the card's history is usually reported to the credit bureaus, if you and the card-owner use it responsibly, it should help the both of you. However, keep in mind that the opposite situation is also true-- if either of you miss a payment or rack up a lot of debt on the card, it could hurt both of your credit histories.

Getting a credit card should be done with care and consideration. As with any major decision, do some research about the different options out there. You can check out reviews to see what people are saying about the cards you're interested in and read the fine print so you understand the fees, interest rates, reward program details and other specifics. In short, know what you're getting into. Lastly, keep in mind that if you're under 21, you'll need to have either a co-signer or a verifiable income that proves you have the means to repay your credit cards.


Use your credit responsibly

Once you receive your first credit card, it's important to get your credit history off to a good start. Keep in mind these smart credit habits:

  • Consider paying your card in full. Contrary to popular belief, you don't need to carry a balance to build credit. We're sure you don't enjoy wasting money, so as often as you can, consider paying your entire balance to avoid paying interest on purchases.
  • It's important to pay your bills on time. Late payments can stay on your credit reports for seven years and wreck your score, so try to make each payment on time.
  • Try not to max out your card. While you may be excited about receiving your first credit card, don't be overzealous and proceed to test its limit-- it could make it look like you're desperate for credit. Instead, try to use only one to 30 percent of your available credit. This looks good to creditors because it shows that you use credit but aren't overly reliant upon it.

Bottom line:

Unfortunately, it can be much easier to destroy your credit than to fix it, so try to look at this new beginning as an opportunity to form good habits and start your credit history off right. The time and effort you put into building this solid foundation might eventually get you the best cards, loans and rates and may even end up saving you money. Good luck and happy building!

About the Author: Jenna Lee is Credit Karma's Copy Editor. Although her specialty lies in creating witty post-it notes, she also enjoys sharing all the financial information she's learned since joining Credit Karma in February 2012. When she's not working, you can probably find her trying out a new dessert recipe or learning/perfecting any musical instrument she can get her hands on. Say "hi" @leejennaa!

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How can i start a credit line if no one will approve me for acredit card?

Credit Karma Team
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Hi Joseh77, you may want to look into a secured credit card. Please read the article above for more information

Reply by
twinkyet

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I can't even get approved for a secured credit card so how is that suppose to work if I can't get either??

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Reply by
IMCUSA

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@Twinkyet,

You stated,  "I can't even get approved for a secured credit card so how is that suppose to work if I can't get either??"

This happens when you apply for secured credit with a company that checks credit.  Wells Fargo and Captial one, for example, have good secured cards.  However, they check credit and do often deny people.

I'd recommend finding a good card with a company that doesn't check credit.  We have a good option on our home page.  Just click on my user name and my contact info is there.  I'd be happy to assist you further if needed.

Reply by
Transfusion

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You're going to have to suck it up and open a secured line of credit. Last month I opened an account at 5th 3rd and bought a secured credit card for $300. I used it once, paid it off next day and my score jumped 77 points.

You also need to dispute your claims against you. It took me about 6 months but I got rid of a ton of things against me by simply disputing them.

Reply by
pookie2580

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i have alot on my credit alone $20,000 in student loans i recently got approved for capital 1 ccredit. i wanna work on paying my debt starting with the lowest amts any suggestions i also seen someone say paying the debt wnt remove it and said to look into  paid to delete aggreement i need to know how to pay and get things deleted off my report and what does delete mean i need help 

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The Credit Bureaus have caught on to folks being added as a "authorized user" on someone else account.

Few weeks back purchased my FICO Scores from myFICO.com  to see what my FICO Scores were.  Was hopping for higher scores but happy where they are at.

759 – Experian
756 – Equifax

763 – TransUnion

While reading the reports noticed that the TransUnion report showed my Oldest Account was 20 years and 6 months as I expected, but the other 2 did not report the same thing.  Equifax had 9 Years, 1 month and Experian had 3 year, 9 months for Oldest account.  I was like how can this be, someone screwed up somewhere.

Average age of accounts was off also

1 year  for Experian

2 years for Equifax

3 years for TransUnion,

Thinking something is not adding up here so send e-mail off to myFICO.com and that went nowhere real quick.  So it was time to call myFICO up and find out what is happening.  Made it thru the menus and Martin was on the other end.  Verified all my info and then started in with my question as to the Oldest account.  Come to find out that when you get your FICO Score from myFICO.com they DO NOT USE the same FICO Model on the 3 Credit Bureaus information.

FICO Model used

  FICO-8 for Experian & Equifax

  FICO-98 for TransUnion

Seems the FICO-8 will not average in “Authorized User” Accounts for Average Age of Accounts or for the Oldest Account.  ( not sure what else )  It seems to get it averaged or show up as the Oldest account they look at Joint Accounts and  accounts you are Primary on only.  Seems that “Authorized user” account somehow tossed to the side. ( I could be wrong, but don’t think so )

Looks  like my wife’s account that is 20 years plus where I’m an authorized user will be changing to Joint Account to get the history.

Martin at myFICO.com said TransUnion will be moving to the FICO-8 Score, but could not give a date just said it would happen soon,  How Soon is Soon?  1 month, 6 months, 1 year?  Who knows.

So the days of being added as an Authorized User to someone’s account are already number.   For the account to count in your credit score you need to be the Primary person (Individual Account)  or it needs to be a setup as a Joint Account to get the boost for the Average Age of Accounts,  Oldest Account and would guess Payment History Also.

Reply by
badgirl102

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i need help

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JackieRidd

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Enter Your Reply

you have great scores ...does the history make them higher ? Otherwise how does that info help?

Reply by
Sexyshi09

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Helpful to 14 out of 20 people

Im looking for a secured credit card i can use to help build my credit. I credit is horrible & im only 24 years old. Everytime i apply for credit cards i always get denied. Need help any suggestions!!!!!! 

Reply by
jayrob1974

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I am an authorized user (for the past 2 years) on a 20 year old AMEX account with a $20,000 credit limit that seldom ever sees a balance carried from month to month, which is why I said YES! to the offer to help rebuild my credit. This positve development has not had much bearing on my credit going up though...it is how I manage the 2 Capital One and 1 PayPal credit accounts that have caused my score to go up, though minimally. The AMEX account DOES, however, account for my total available credit, so because of the low balance to credit limit ratio my credit utilization is never more than 12%, and that is a good thingl. Still, it does not average into the age of my accounts. My point is that MY actions, just like when I ruined my credit, are the determining factors in my credit score going up. The old, fancy AMEX account certainly helps but is not my saving grace. As older, negative info falls off and is replaced by more of the good stuff, THAT'S what really counts.

Reply by
mvilla

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FYI...credit scores are never that close together. These are made up scores to make yourself look good. Be honest no one knows who you are. Honesty starts with yourself!!!

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Reply by
icuhowie

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@mvilla,   Not sure were you get your Credit Scroes from, but those were my scores from MyFico dot com when I made that post.   I have the print outs every year along with the printed credit reports from all 3.   Lets see were the scores are in Jun when I pull the numbers again.

Reply by
Barksann

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Enter Your Replyhow long does bankruptcy stay on a credit report???

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I only have 3 open collections totalling $728. If I pay those, do they automatically come off? If not, can I talk to the credit bureau to reqest removal?

Credit Karma Team
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Hi luvcodydog,

Paying off a collection account won't automatically remove it from your credit report. These accounts typically remain on your report for seven years. However, some agencies will work with you to arrange what is called a "pay for delete" agreement. 

1 Contribution
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How can I get companies and creditors to stop running my credit report so I dont keep getting inquires on my report. I havent applied for anything latley.

Thank you

Credit Karma Team
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Hi Cathy,

You may want to look into freezing your credit reports. Hard inquiries that you did not authorize can be removed from your credit report via the dispute process. 

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Helpful to 19 out of 21 people

I am 18 and I have seen my parents struggle to build their credit for a while, I am trying to begin on the "right foot" and do this right. Any suggestions??

Reply by
aonbyte

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Save money until you have enough to open a secured credit card. Do not make purchases unless you know you can pay it off by the end of the month. Secured credit cards are not interest free and work just like regular credit cards (except for requiring a deposit at first). Make sure the secured card you choose reports to the credit bureaus. Eventually (usually after a year), you can be given the option to get your deposit back and keep the credit card as a regular card (no longer secured). You can use this to make purchases to continue to build your credit history for a few months. 

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A year and two loans later and still have a "thin file"?  No.  I think not.

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Helpful to 5 out of 5 people

I just joined this site today as I was wondering about my credit score.  My score came back as a thin file today.  Did some research and then applied to Capitol One.  Got approved for $300. in about 20 seconds.  All this happened in an hour.  Not much, but it is a good start for rebuilding.  There is hope for thin files

Credit Karma Team
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Hi FredrickVegas, 

Glad to hear you were approved for an account. It sounds like you're on your way to building your credit! We wish you the best of luck. 

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i havre no idea what am doing

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What I did after going bankrupt was to take a tax return and deposit it into a credit union then borrow against that deposit as a sucured loan with auto payments till it payed off then repeatted process till a card company would offer a card then took that offer out and began to rebuild it.

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i need a credit score to apply to buy a house

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