How To Build Credit

how to build credit with woman using mobile phone and credit card in hand

You may have some big financial goals, and a healthy credit history is a way to help you achieve them. But how do you build that credit history from scratch? It can feel like you’re trying to get to the top of a skyscraper, but don’t even know which door to open to let you in.

According to a recent TransUnion study, there were 5.8 million new-to credit consumers in the United States in 2021. So you’re not making this climb alone. And when it comes to getting started, there are several doors to choose from. It’s all about what works best for you and your financial situation.

Read on to learn the basics about how credit scoring works and get tips for how to build credit:

How credit works

Your credit scores are calculated using some of the information from your credit reports. Information is added to your credit report when companies like banks, credit unions and even some landlords report your account activity to credit reporting agencies. Information they report can include your payment history, last reported balance, and the account’s status.

Your score may move up or down depending on the type of information that was added, changed or removed from your credit report. Information related to your accounts can impact your credit score, but your personal information isn’t included in credit score calculations.

What is the starting credit score?

There is no standard starting credit score. If you have no credit history, you simply won’t have a score at all. The credit scores for two popular credit scoring companies, FICO® and VantageScore®, range from 300 – 850. Once you start building credit, whether it be from your first credit card, loan or other credit product, you don’t necessarily start at the bottom. You’ll typically establish a score once the lender reports the account to the credit reporting agencies (Equifax®, Experian®, and TransUnion®).

Methods to build credit

A healthy credit history can help you achieve the financial opportunities you deserve, like getting approved or securing better terms and rates for life’s major purchases, like a new car or home. Below are some ways you can start building credit.

Become an authorized user

If you have limited or no credit history, becoming an authorized user on a credit card account held by someone you trust, like a spouse or parent, is a way to help build credit. To become an authorized user, the primary cardholder will need to contact the company to add you on to the account. The primary cardholder is responsible for the activity on the account, even if purchases are from the authorized user’s card.

It can help you as the authorized user build credit history because you will inherit the history of that credit card account. Given that, it’s important to partner with someone who has a positive history on this account. You don’t inherit only positive activity, but potentially adverse information, like missed payments, as well.

The primary cardholder should check with their lender to be sure they report account activity for authorized users, since not all lenders do. You’ll also want to make sure you and the primary cardholder are clear how you may use the account. As an authorized user, you will have a card in your name and can make purchases. How and when will you pay back any charges? Do you know the credit limit of the account and how much can you use at any given time? This is a financial relationship, so you should both be open and clearly communicate about how you will manage your activity with the card.

Credit cards for building credit

Credit cards are a popular option for building credit, and you may be approved for one even if you have a limited credit history. TransUnion’s recent study about new-to-credit consumers showed that credit cards are the first product opened for two-thirds of new-to-credit consumers in the United States. There are plenty of cards to choose from. It’s important to choose the right credit card for your goals and financial situation.

Secured credit cards are a worthwhile option to explore. Instead of a traditional credit limit, secured credit cards require a down payment. That down payment then becomes your credit limit, meaning you can spend up to that amount at any given time. Activity on a secured card is reported to credit reporting agencies, which can help build credit.

You can get your down payment refunded if you cancel the card or upgrade to a regular credit card as long as you’re up to date on your payments.

Also, some lenders offer student credit cards specifically for college students. They’re essentially regular credit cards, but typically have higher rates of approval for people with a limited credit history. Like all credit card applications, you will likely need to provide some proof of income, even if it’s a student job, to be approved. If you have no or limited credit history it may mean you’ll have a lower credit limit. But your credit limit can usually be raised after some time if your account remains in good standing and you continue to make payments on time consistently.

Use a co-signer

If you’re having trouble getting approved for a loan, you may be able to use a co-signer. Ideally, you should ask someone who has a healthy credit history, to help your chances for approval. A co-signer agrees to take full responsibility for paying back the loan, along with you, the primary borrower. Because this takes tremendous trust in your ability to pay back the loan, co-signers tends to be a family member.

See if your rent payments are reported

Renting can impact your credit if your landlord is reporting your monthly payments to the credit reporting agencies. If they are reporting, consistently making on-time payments can help you build a healthy credit history.

You can ask your landlord if they are reporting if you’re not sure. If they’re not, you can request they do so, since it could benefit both of you. There are products that can benefit your credit history by helping monthly rent payments be reported to credit reporting agencies. There are some, like TransUnion’s ResidentCredit, that landlords need to apply for and use, but there are others, like certain credit cards, you can apply for yourself.

Take out a credit-builder loan

A credit-builder loan can be useful tool to build a credit history, but it can come with a cost. With a typical personal loan, the lender would send the funds directly to you to use as needed. With many credit builder loans, your lender sends the funds into a bank account to hold until the end of the term of the loan. You would make regular monthly payments like a regular loan, but when the loan term is over, the bank releases the funds to you.

Instead of using the money to pay for something, you’re paying yourself back over time. Of course, as with regular loans, this can come with fees and a higher interest rate, so you need to balance your credit goals with your financial goals. However, the benefit is the lender will report your loan activity to the credit reporting agencies, helping you grow your credit history.

Establish good credit habits

Consistent good credit habits are the key to building a long, healthy credit history. Understanding the common credit score factors can help guide you as you make important credit decisions. Here are some of those factors and habits to keep in mind:

Make payments on time

On-time payments are one of the most influential credit score factors and can weigh heavily on your credit score. Set reminders or automatic payments if you can to keep your payments current. If you’re worried you’re going to miss a payment, contact the company as soon as possible to see if they have any sort of hardship plan.

Exceed minimum payments

Making only the minimum payments can be costly because of high interest rates typically found on credit cards. Making more than the minimum payment on your accounts will help you keep your balances as low as possible and can save you money. However, if you’re having financial difficulties, making at least the minimum payment will keep your account current and won’t count as a missed payment, which can have a significant, negative impact on your credit score.

Do not max out credit limit

Your credit utilization ratio, which measures how much of your available credit limit you’re using, is another important credit score factor. Keeping your balances as low as possible is best, but if they’re close to the limit, a good goal is to get your balances down to less than 30% of your credit limit. At around that threshold you should start seeing a more positive impact to your credit score.

Be mindful of applying for too much credit

This doesn’t mean you shouldn’t apply for credit as you need it, but just be cautious about having multiple hard inquiries on your credit in a short time frame. Applying for several loans can send a signal that you may be taking on more debt than you can manage. This is sometimes categorized as a credit score factor called “new credit.” Hard inquiries or “new credit” can affect your credit score, though it’s typically not a major influence and the impact hard inquiries can have on your credit score will lessen over time.

Monitor your credit

Even if you don’t think you have a credit history, you should still check your credit reports. You can get free credit reports from each of the nationwide credit reporting agencies (TransUnion, Equifax and Experian) each week from

As you start and continue building your credit history, checking your reports consistently will help you stay on top of important changes and allow you keep an eye out for identity theftLenders tend to provide updates to credit reporting agencies once a month, so you may not need to check every week. The important thing is to take time at a regular pattern to review your report information to be sure everything is an accurate picture of your history with credit.

Credit reports may seem confusing, but they’re broken down into sections. TransUnion has created a credit report guide to help you understand each section and how the information can impact your credit score. Remember, building and maintaining good credit is a marathon. There’s no quick fix and it can’t be built successfully overnight. Keep an eye on your credit, practice smart financial habits, and you should be able to achieve the credit score you want. 

Disclaimer: The information posted to this blog was accurate at the time it was initially published. We do not guarantee the accuracy or completeness of the information provided. The information contained in the TransUnion blog is provided for educational purposes only and does not constitute legal or financial advice. You should consult your own attorney or financial adviser regarding your particular situation. This site is governed by the TransUnion Interactive privacy policy located here.

What You Need to Know:

The credit scores provided are based on the VantageScore® 3.0 model. Lenders use a variety of credit scores and are likely to use a credit score different from VantageScore® 3.0 to assess your creditworthiness.

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