How to Build Your Credit from Scratch - Credit Cards Can Help

So, you have no credit history? Find the best credit card to help build your credit by following these expert tips.

By Allan Halcrow | American Express Credit Intel Freelance Contributor

4 Min Read | January 31, 2020 in Credit Score



Two main things are required to build credit from scratch: payment history and time.

You can use credit cards to build credit, along with loans and ‘alternative data’ sources such as utility and rental payments.

It’s important that your payment history is visible to lenders.

Baking from scratch usually requires many ingredients. But there’s a simple recipe to build credit from scratch, with just two main ingredients: payment history and time.


Whether you’re a student just beginning to build your financial profile or a new resident trying to establish credit in the U.S., ultimately you need to prove to lenders that you can handle your financial obligations. Experts say the best way to do that is to consistently make your credit card, loan, or other payments on time. And to build up good credit from scratch, you’ll want to focus on payments that are tracked by the three major credit-report bureaus.


Best Credit Cards to Build Credit

Experts say not having a varied mix of debts can hurt your credit profile,1 and the best place to start building may be with a credit card. But the best credit card to build credit may be different for different people. A retailer card, a card with a cosigner, becoming an authorized user on an existing card, or a secured card all could be viable options for building your credit.

  • Retailer. If you’re just starting out, it may be easier to get approved for a retailer’s store credit card than for a general credit card, though retailer cards usually charge high interest and have low credit limits.2 You may also be able to get approved for a general credit card that offers a low credit limit and charges higher interest.
  • Cosigner. If those options don’t pan out for you, you can get a cosigner. Keep in mind that you and your cosigner are jointly liable for all charges.
  • Additional card member. You can also be designated an authorized user/additional card member on someone else’s card. In that case, the owner of the card you’re authorized to use is solely responsible if you don’t pay your charges. But note: if you’re an authorized user of another person’s credit card, his or her payment habits can affect your score, too.
  • Secured. Another option is a secured card, which requires you to make a deposit equivalent to the credit limit you’re given. If you manage the card responsibly for a few months, you can usually convert it to a regular credit card. Be sure that the secured card issuer reports to the credit agencies.


Build Credit With a Loan in Your Own Name

Another, more complicated way to build credit from scratch is to take out a loan. Student loans are one option—but only if you’re a student, of course. Auto loans are another option. Some car dealers offer programs for students and/or first-time buyers that might allow you to qualify for a loan for which you otherwise wouldn’t be eligible.3


If you aren’t able to get a loan on your own, you may consider getting a cosigner. But as with credit cards, loan cosigners will be liable for the debt if you’re unable to make the payments.


If all else fails, get a credit builder loan. When you’re building credit from scratch, another option is a credit builder loan. After you’re approved for such a loan, you essentially make payments into a savings account that a financial institution sets up for you. You make monthly payments (plus interest) until you’ve paid the entire amount of the loan, at which point you get access to the funds. Because these loans exist to help consumers build credit, your payments will show on your credit report. These kinds of loans are usually offered by small community banks, credit unions, and online lenders.


Consider Leveraging ‘Alternative Data’

In addition to using a credit card to help build credit and/or consistently paying down a loan, you may be able to build your credit by leveraging payments you’re already making.


Some lenders now consider “alternative data,” such as payments to your landlord, utility provider, or cell carrier. Although those entities typically don’t report to credit bureaus, some of them—such as utilities—may do so if you ask. Another option is to pay your rent using one of several online payment platforms, which can build your credit history if you explicitly opt to have those payments reported to the credit bureaus. Although doing so is still uncommon (less than 1% of credit files include rental entries4), it can be helpful.


One downside of these alternative data options is that the payees must cooperate, which they aren’t obligated to do. Also, it may cost you—some service providers charge an enrollment fee, a monthly fee, or both. You’ll want to know about such charges before choosing a service. And finally, keep in mind that experts say using rental payments is not as efficient at building credit as other options.5


Whichever path you choose, it will take at least six months to begin establishing your credit, experts say.6 But building credit is a long game: the longer your history (assuming you pay on time), the more you’ll be rewarded.


The Takeaway

To build credit from scratch you’ll need to establish a payment history that shows on your credit report and maintain it for at least six months. It’s often fastest and best to use credit cards to build credit, but two other vehicles also can be key: loans and alternative data sources such as utility and rental payments.

Allan Halcrow

Allan Halcrow is a freelance writer concentrating in business, human resources, and diversity and inclusion. He is also the author of four books on management.


All Credit Intel content is written by freelance authors and commissioned and paid for by American Express. 

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