Credit has a wide-reaching impact on many different aspects of everyday life. It can determine whether you receive a loan, how much interest you\u2019ll owe or even if you\u2019re approved to rent an apartment. If you don\u2019t have a credit history, then lenders don\u2019t have a track record of how you\u2019ve handled debt in the past, and might be more hesitant to lend to you. Or, if you\u2019ve had issues with late payments or credit cards, then your record may have negative entries that hold you back from moving forward. Both of these situations can be discouraging scenarios.<\/p>\n
The good news? Your current credit picture isn’t forever \u2014 it\u2019s always changing. A poor credit record today doesn’t mean you’ll be penalized forever, and starting from scratch simply means that it might take longer for you to receive credit. By adopting simple, consistent habits and utilizing sound financial strategies, you can start building a credit history that works for you. Ultimately, demonstrating your creditworthiness<\/a> will help you to become qualified for bigger financial opportunities and become more confident in dealing with money.<\/p>\n Before diving into the specifics about establishing credit, it is useful to know the distinction between your credit history and credit score.<\/p>\n Your credit history is a record of how you borrowed and paid back money over time. It contains details from your credit reports<\/a>, like whether you made payments on time, how much you owe and for how long you\u2019ve had accounts open. These reports are kept at credit reporting agencies like Equifax<\/a>, Experian<\/a> and TransUnion<\/a>, as well as smaller specialized agencies.<\/p>\n Your credit score is a three-digit number that summarizes your credit history in a snapshot. Most scores are between 300 and 850, and higher scores indicate that you are more likely to repay borrowed money. While it\u2019s common to focus on the number, remember that the number only exists because of the history behind it. When you work on building credit history, you\u2019re also creating the foundation for a stronger score<\/a>.<\/p>\n A secured credit card is one of the simplest ways to start establishing credit if you are starting from scratch, recovering from bad credit, or are denied a regular credit card. Unlike a regular credit card, a secured credit card requires you to put a deposit down that is used as your credit limit. For example, if you put down $300, that becomes your credit limit. This deposit protects the card issuer, so they are more willing to loan you money even though you do not, at this moment, have excellent credit.<\/p>\n To get the most from a secured card, charge it for small, frequent expenses that you can immediately repay \u2014 like groceries or gas \u2014 and repay it completely before it’s due each month. Each of these repayments are reported to the credit bureaus, creating a record of good payments. Down the road, appropriate use of a secured card can even get you switched to an unsecured credit card, which is a major milestone on your credit-building journey.<\/p>\n Another way to build credit is to be added as an authorized user on someone else\u2019s credit card account. This means a trusted family member or friend allows you to share in their account history. If they\u2019ve managed their card responsibly \u2014 by keeping balances low and making consistent payments \u2014 that positive history may appear on your credit report as well.<\/p>\n Becoming an authorized user is often a faster way to build credit, since you don\u2019t need to open a new account or pay a deposit. In a few instances, you don\u2019t even need to utilize the card. Being added to the account alone can benefit your credit file. It\u2019s also important to make sure the primary cardholder continues their good habits, because if they fall behind on payments or carry high balances, that activity could also be reflected on your report.<\/p>\n Rent<\/a> is often one of the largest bills people pay each month, but most landlords don\u2019t report those payments to the credit bureaus. That means you could pay thousands of dollars a year on time and never see it reflected on your credit report. The same is true for many utilities and cell phone bills.<\/p>\n Today, however, there are services that allow you to report these payments to the bureaus directly or indirectly, such as Experian Boost<\/a>, Self or Boom. By signing up, you can turn bills you\u2019re already paying into tools for building credit. This is especially helpful for people who are new to credit and may not have access to traditional products like credit cards or loans. Consistently paying rent and bills on time and having those payments reported gives lenders more evidence of your financial reliability.<\/p>\n Building credit history often involves showing that you can manage different types of accounts<\/a>. Two common forms are installment loans and revolving credit. Some types of installment loans include personal loans<\/a>, student loans and car loans. You borrow a set amount and repay it over time in fixed monthly installments. Revolving credit includes credit cards or a line of credit<\/a>, where you can borrow, repay and borrow again up to your limit.<\/p>\n Lenders like to see that you can handle different types of credit. It\u2019s what\u2019s known as your credit mix, and can be a factor in your credit score<\/a>. For example, making steady payments on an installment loan while keeping low balances on a credit card demonstrates balance and responsibility. Just be careful not to borrow more than you can afford to repay. Falling behind on an installment loan or carrying too much credit card debt can quickly hurt your credit report and set back your progress.<\/p>\n No matter which tools you use, your habits matter most. The biggest factor in your credit history is your payment history, so always make at least the minimum payment on time. Setting up automatic payments from a checking account or savings account can help you avoid mistakes. Even one missed payment can stay on your report for years, so consistency is key.<\/p>\n Another factor is credit utilization<\/a> \u2014 how much of your available credit you\u2019re using. Try to keep this number below 30%. For example, if your credit limit is $1,000, try not to carry a balance higher than $300. Keeping balances low shows lenders that you\u2019re not overly reliant on credit. Also, avoid applying for too many new accounts at once. Each application adds a hard inquiry to your report, and several in a short period can make you look risky to lenders.<\/p>\n Finally, check your credit reports regularly. You\u2019re entitled to free reports from each bureau through AnnualCreditReport.com<\/a>. Reviewing your reports helps you spot errors<\/a>, like accounts that don\u2019t belong to you or incorrect late payments. If you see a mistake, file a dispute right away. Correcting errors can improve your profile and protect you from problems like identity theft.<\/p>\n Building credit is a process and not an overnight fix. If you\u2019re new to credit, it may take three to six months of activity before the bureaus can generate a credit score for you. For people who are rebuilding after bad credit, the timeline depends on what\u2019s in your report. Late payments, collections and bankruptcies take time to fall off, but their impact lessens as you add positive history.<\/p>\nCredit history vs. credit score: What\u2019s the difference?<\/h2>\n
How to Build Credit History<\/h2>\n
Get a secured credit card.<\/h3>\n
Become an authorized user.<\/h3>\n
Report your rent and bill payments.<\/h3>\n
Get an installment loan or line of credit.<\/h3>\n
Maintain good credit habits.<\/h3>\n
How long does it take to build credit history?<\/h2>\n