Guide: How to Start Building Your Credit Score from Scratch

Building your credit is a tricky business. Without effectively managing credit in the past, it seems impossible to start building it from scratch.

A classic chicken-and-egg situation where getting a loan, a credit card, and an apartment for rent or even employment can require a positive credit history.

So how can millennials start building their own credit when they have nothing to show? This guide goes over every step of the way, explaining all of the available options.

For everyone reading this, here is a reassuring tap on the shoulder- every journey has to begin somewhere.

How to start building your credit score the right way.

  1. Student Credit Cards

    Though they come with lower limits and higher interest rates, are an excellent way to start building credit.

  2. Retail Credit Cards

    It’s a nice way to save at your favorite store, while slowly building credit.

  3. Rent Reporting

    Rent reporting can get you credit. Just make sure your landlord is reporting to the credit bureaus.

  4. Secured Credit Cards

    You can apply for one and use it like a regular credit card.

  5. Get a Co-signer

    It’s possible to obtain a loan or get an unsecured credit card by using a co-signer.

  6. Open a Joint Account

    This usually works with family members or very close relatives.

  7. Get a Credit Builder Loan

    These types of loans are meant to help people build credit. And here is how it works.

credit score good

While being denied from creditors over and over again can be frustrating, there are many ways to cultivate a solid credit history and build your credit score without having to jump over insurmountable obstacles.

And while we tend to the need of a credit with larger investments, please understand that credit requirements exist on a spectrum.

More often than not, you will be asked for your credit score when looking for an apartment to rent, applying for a job, and even signing a phone contract.

travelling by train

Failing to show a solid score might result with paying upfront guarantees that can be rather costly.

So how do you begin to build your credit in the first place?

What should you do first when trying to build credit?

Having to take a wild guess, you are either starting on the market with an entry-level position, or have yet to finish your studies and leave college. Both can have equal setbacks and opportunities as well.

So if you have entered the market, that means you have verifiable income. And this can help rather much when applying for a credit card. If still in college. though, you can make sure that rent and student loans are paid on time, and transfer that on your score as well.

But let’s start one step at a time.

The first thing you should do if you are renting a place is check whether or not your landlord is reporting to one of the three credit bureaus. Those being Equifax, Experian, and Trans Union.

Such payment history hardly enters your official credit score, but Experian, for example, includes it in your service credit score. When paid on time, it plays a minor role when building your credit, but can have devastating consequences if you have a bad record.

Namely, collecting agencies often buy unpaid bills, and this seriously hurts your credit score.

  • Make sure you are paying your utility bills and phone contracts on time. Again, this enters your service credit only, but can have negative and lasting effects if unpaid bills are being reported.
  • Make sure you are paying student loans on time. These get reported to the credit bureaus, and help in establishing a good credit history.
  • Make sure every step you are going to take next is reported to the credit bureaus. Otherwise, you are building your credit without officially building your credit.

Easy credit-building tools and options

When millennials try to build credit, their progress follows a symptomatic curve. Hard to get things going in the beginning, but then all efforts easily accumulate.

So here is how to get started.

Student Credit Cards

Though they come with lower limits and higher interest rates, are an excellent way to start building credit. Acceptance rates are usually high, and applying for one is easy. They often come with promotional deals and rewards.

Retail Credit Cards

While easy to get, their interest rates are among the highest. It’s still a nice way to save at your favorite store, while slowly building credit.

Become an authorized user of a credit card. Probably the easiest way to start building credit, especially if you have family members willing to back you up. Just make sure the credit card activity is being regularly reported to one or more of the credit bureaus.

And while you are not legally obligated to pay for the charges, you’d still want to pay your share on time. Remember that part of the credit-building journey is for you to reframe your mindset, and become a responsible individual.

Rent Reporting

Rent reporting can get you credit. Just make sure your landlord is reporting to the credit bureaus. Again, not every credit score takes these into consideration, though some do. Rental Kharma and rent Track for example, put bills that you already paid in your credit report, helping you to build a positive history.

Secured Credit Cards

You can apply for one and use it like a regular credit card. The goal here is to qualify for an unsecured one, so have in mind that this one is not meant to be used forever. Pay on time, and close the account as soon as you can.

The way this card works is by being tied to a cash deposit that you make upfront. And it’s usually equal to the amount of your credit limit. Should you fail to pay charges on time, it is used as collateral. The moment you close the account, you’ll receive this deposit back.

They come with low annual fees and there is no problem when it comes to acceptance.

Get a Co-signer

It’s possible to obtain a loan or get an unsecured credit card by using a co-signer. To be on the safe side, though, make sure that the person who is participating fully understands what he is getting into. He or she will be on the hook for the full amount owed if you cannot pay for yourself.

Open a Joint Account

Again, this usually works with family members or very close relatives, since the responsibility is being shared. Alternatively, you can ask peers or colleagues with better credit to back you up as well. If your significant other has good credit, this might be a very convenient option.

Get a Credit Builder Loan

These types of loans are meant to help people build credit. And here is how it works- the amount of the money borrowed is being held by a lender, and it’s not released until the loan is repaid in full. What this basically means is that you are trading cash for credit. Think of it as a forced savings account if you so prefer.

Ideally, if you have some money in the bank, or have a habit to regularly put aside part of your paycheck, this can be a perfect option for building credit fast, without having to bother with acceptance rates or various fees.

Again, make sure the lender reports to the credit unions, though they usually do since this form of loan is most common with credit card unions and community banks. Most likely under some program to help locals establish a solid credit history.


Get an auto installment loan

Vehicle loans are among the easiest types of loans to obtain, although the interest rate and terms can vary greatly depending on who underwrites the loan for you. They sometimes might require a co-signer, but acceptance rates are high nonetheless. Check for title loans with no car inspection.

Besides, making your purchases work in tandem with building your credit score is part of the mindset you’d definitely want to adopt.

Non-profit lending agencies

They can provide affordable loans and report positive payment history to the credit bureaus. They have been gaining popularity and have expended across the nation by providing low-income borrowers a way to get financing while building credit.

The best loans to build credit, therefore, may be found right in your neighborhood. I would recommend credit unions because they are a non-profit institution, tend to be local and thereby tend to offer better service.

Nonetheless, you should shop around and choose the products that best serve your goals as well as your bottom line.

Positive habits when building credit

While unpaid bills can seriously hurt your credit when sold to a collection agency, there is more to building credit than simply paying bills on time.

For example, average account age makes part of your credit score, so opening many accounts at once can significantly lower your chance of building good credit.

This means that unlike secured credit cards, other accounts are best to be kept open for as long as you can.

You’ll also want to keep your credit utilization low. And this is basically the balance when compared to your limit.

To stay on the safe side, make sure to aim somewhere between 1-30%. Make sure to pay your utility bills and phone contract on time, and report your activities to the credit bureaus.

The most important thing to understand though is to always plan upfront. Set aside one day from this month, and try to map your credit building journey for the upcoming period. Gamify your path if you will, drawing down when and how you will “level up”.

Opening multiple accounts, and starting to build credit in several different ways can be unforgiving if you don’t spend enough time to remember each effort separately. Therefore, putting things down on paper seems reasonable.

You can even download an app, or open a simple excel document and start writing.

Have a personal budget!

Numbers easily mix together, and when you are unaware of how much you are spending versus how much you are earning, using credit tends to make things much worse.

Instead of a tool that will help you reach your financial goals, it easily becomes a burden you will have a hard time dealing with.

Millennials being new to income and recurring expenses, easily overlook the necessity of a personal budget. So let this guide on building your credit to teach you the importance of building a personal budget as well.

How to proceed with building your credit

While these options will lend you money with little to no credit history, it’s important to think long term and step out of these temporary solutions. Not only you will get more benefits as you move on, but you will improve your credit reports as well.

Credit can be a powerful tool to help you achieve your financial goals. So understanding how you can improve yours is rather important.

The easiest way would be to start applying for a credit limit increase. But that’s only after you have actually been given credit. While it’s important to think how to expand your limit and hence improve your score, you should also consider your limitations. Unexpected expenses do occur, so plan upfront and never ask for more credit than you can repay at any time while still staying in the positive.

It’s very irresponsible to always stay at a positive zero, and not prepare for emergencies or random events that will definitely require extra money.

And I understand how this association can be unfortunate, for the man who fancies himself as the rational type automatically things “oh, that’s definitely not me”. But ominous music rarely plays before all things go south. So plan upfront, and plan diligently.

Several credit card issuers print FICO scores on customer’s monthly statements, and they grant online access to these as well. So make sure to check yours.

Credit score simulators and free credit reports are available online too, and there are many websites that offer these. Try some and see how well you compare to the average.

Understand the type of credit reports, and how they affect your credit scores. These play an important role in building estimates of how well you will handle credit in the future, so make sure you understand how your past behavior affects them.

Information on these reports usually includes your payment history, credit utilization ratio, types of credit used, and how long you’ve been using credit.

They also include total balances on all debts you owe, public records like tax liens or bankruptcies and the number and date of credit accounts you’ve applied for. Which is probably an extra reason why you should map your journey and restrain yourself from applying for dozens of cards all at once.

Entering the financial world can be hard for millennials when they are leaving college or starting with a job or to get a title loan without a job. But make no mistakes- it’s a much favorable position considering how the clock of grown-up life is not tik-toking behind your shoulder.

Building credit for millennials, though seemingly impossible in the beginning, is way easier when you have little to no expenses, and nobody to take care for.

But understand this- while all the options outlined above can work when building your credit, you must carefully weigh in each of them and ultimately decide what works for you. Do it with consideration and plan upfront, and you will have an outstanding credit to show.

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