How to Build Your Credit Starting From Scratch

Estimated read time: 10 minutes

So you're looking for a new job? You may need a car to get to your new job. Or perhaps you are seeking the paycheck to accomplish goals like a bigger home for your growing family? It could just be that you want or need a better cell phone plan?

Guess what all these goals have in common?

The answer:

Your credit history. This overlooked and under-appreciated financial bio about you will affect almost all of your financial decisions, which is why it is so important to learn how to build it up. Whether you're a new student, recent graduate or long-time cash consumer finally making the switch to credit, establishing a credit history is crucial to having your future turn out exactly as you imagined.

The problem is that too many people don't pay their credit much attention. According to a 2015 study by the Consumer Financial Protection Bureau, one in 10 Americans — or about 45 million people — have no credit history to their name. But you can get ahead of the game. Build your credit early and build it smartly. Below we've put together a guide to help you build credit from scratch — from the ins-and-outs of interest rates to credit builder loans and the best starter credit cards.

Here are 6 tips for building credit from scratch.

First, Pull Your Credit Report

What is it?

A credit report is to a consumer what a transcript is to a student. It tracks your financial history and uses a standardized method to calculate how you stack up compared to other consumers. Similar to a high GPA, a high credit score will open doors in the future as you establish a career and family.

Who calculates it?

There are three major credit bureaus that track your credit history — Equifax, TransUnion, and Experian. Each has a slightly different methodology but will provide similar scores that can give you a sense of your credit health. Better yet, just track your FICO score. It combines all three major bureaus, and most lenders only reference that score when they assess your financial history.

How is it calculated?

A FICO score ranges lowest to highest from 300-850. The average score in 2017 was 695 — the highest average since FICO began tracking scores a dozen years ago. "The relative strength of the economy, with low unemployment and rising home prices are helping those consumers who were struggling during the great recession to recover financially," said FICO Vice President Ethan Dornhelm.

The first step to building credit is understanding the breakdown of FICO's standardized criteria that shape your score.

Payment history (35%)

Have you paid all your past bills on time? Late payments over 30, 60, or 90 days can show up on your credit report.

If you don't pay up, your credit card issuer will likely send your bill to a collections agency, which will hurt your score and pocket even further.

Amounts owed (30%)

How much debt do you owe compared to your income? Also known as the debt-to-income ratio or DTI, this number tells a credit issuer if you can safely handle new debt. A high DTI (over 50%) is risky while low DTI (below 35%) shows that a customer can handle new debt.

Length of credit history (15%)

When did you start building credit? Consumers who successfully manage credit over a long period of time are considered a safer risk while someone with little to no credit experience is more of an X factor. Still, a long credit history is only good if it's not riddled with late payments and overdue fees.

Credit mix (10%)

What kinds of credit do you have? Types of credit include secured loans, like car loans and mortgages, and unsecured loans, like personal loans, credit cards, and student loans. Lenders like diversity and consider having a variety of credit better than just one or two types.

New credit (10%)

How many cards have you applied for recently? Even a couple applied for within a week, month, or even year is often a red flag for lenders.

Understand How That Number Affects You

In today's world, credit is fundamental to a flexible life. Lenders are everywhere — when you need a car, home, phone — and your score and history is one of the first things they look to when assessing your creditworthiness.

Below we've outlined several areas of life where credit plays a part.


Want a mortgage? Banks will use your credit score to determine how large a loan they'll grant you, what interest rate they'll charge and how many years they'll give you to pay it back. If you have bad credit, it may be harder to qualify for a mortgage. If you do qualify, you'll probably pay a higher interest rate because you're considered a riskier borrower.

Car insurance. Do bad credit scores lead to bad driving? Insurance companies use their own data to determine who's likely to ding or total their car. They believe there's a connection between low credit scores and accidents and will likely charge you a higher premium if you have bad credit — even if you haven't been in an accident.

Landing a job. Employers can look at an employee's credit score during the application process, though they're not supposed to deny a job because of it. 47% of employers surveyed say they check credit scores of new job applicants.

Home insurance. Insurers may be unlikely to issue you insurance if you have poor credit. Why? There may be a link between bad credit ratings and making large or false claims on a home or apartment.

Water, electricity, and gas. Utility companies regularly check credit ratings on customers. Bad credit may require a person to put up a larger deposit.

Renting: Some landlords will pull a credit report when a new renter expresses interest in renting one of their properties.

Interest Rates: What You Need to Know

As we just saw, your credit score could inhibit you from getting a loan or credit card and even spike the interest rate or deposit attached to said loan or card. The small rate increase might seem like chump change when the bill arrives in the mail, but even a slightly higher rate can cost you tens of thousands of dollars.

With credit, live within the APR range. Many credit cards are advertised with an Annual Percentage Rate (APR) range — let's speculate this could be as low as 13.99% or as high as 24.99%, or more. The actual range varies based on card issuer and credit card.

It's not that your interest rate will constantly fluctuate between those two numbers. Rather, the credit card issuer will offer you a final APR within that range, depending on your creditworthiness. A low score will likely come with an APR toward the high end of the range, and vice versa for a high score. The same goes for loans, bonds, mortgages, and any other type of credit line a lender might offer you.

Without credit, take the best you can get. As we've mentioned, the good news for those without credit is that you're not alone. Just like everyone starts without a GPA, everyone starts without a FICO score. And that means there are established options to help you build that credit.

Nonetheless, at the start of your credit building journey, when it comes to interest rates on credit cards, you'll probably end up with an above average rate. Over time though, as you pay your bills on time and prove that you're a responsible consumer, your lender can reward you by lowering the APR attached to your card.

Build Your Credit

Just because you have no credit now doesn't mean you'll always have no credit. Your credit score is a moving target, and it's in your power to improve it. Many people know this but then jump into the world of credit cards without a single thought.

It's important to understand that credit cards are a double-edged sword. Just as they can help you establish a great credit history, they can also hurt your score if used incorrectly or haphazardly. To help you get ready for your first card or loan and begin building good credit, we've put together some surefire financial strategies to establish a solid foundation. With these, don't hesitate to jump in right now — today!

Check your credit score. This might seem counterintuitive or like a waste of time if you've never had a credit card. But there are many ways to acquire credit, and it doesn't hurt to confirm you don't have a score before you apply for any card or loan. Plus, considering you get three free credit report checks per year — one from each of the three major credit bureaus — it's a great way to get familiar with the process since you'll want to check your score every four months once you start accumulating credit.

To apply, head over to

Create a budget. If you're like most Americans, you likely have a general sense of how much you can spend but never bothered to build out a concrete budget. The good news is today's digital world has made it easier than ever. Consider the 50/30/20 rule, the envelope method, or an app like Mint to help you get a grip of your expenses and revenue.

Set up automatic bill pay. If you have trouble remembering dates, you're known to be a scatterbrain, or you're just extremely busy, not having to worry about all of your various bills can save you a bunch of time and, potentially, a costly mistake. Next time you receive a bill in the mail, call that company's customer service to set up an automatic payment plan, or go online! Most creditors will let you set up autopay from their web portal.

Pay the utility bills. Building credit doesn't mean using a credit card. In fact, a great way to start building your score and a sense of financial responsibility is to consistently pay your living bills — that means cell phone, water, heat, electricity, even rent can work toward your credit score potentially.

Make saving a priority. Emergencies happen every day, and they can happen to any of us, even if we might not want to admit as much. Before you apply for a credit card it's equally important to establish some savings so you don't end up maxing out the card and killing your score.

Growing an emergency fund is possible despite how tight your pocekts might feel. Using savings to pay down credit debt can offer a quick boost to your credit score, but not at the expense of your emergency preparedness fund.

Consider Secured Credit Cards

While there are a bunch of criteria to keep in mind when picking your first credit card, the first one you should look for off the bat is whether the card issuer reports to the three major credit bureaus monthly. To help you build credit as fast as possible, the credit bureaus need as much financial data as they can get their hands on, and monthly reports from your credit card company are the primary ways they learn about your credit management skills. A secured card can be a good choice for someone with no credit or low credit score, because it offers you the chance to borrow against a deposit.

The two secured cards below report monthly.

Discover it Secured Card


  • Nominal deposit required.
  • Earn the most cash back on food and gas.
  • Earn some cash back on all your other purchases.
Discover It Secured
Secured but with cash back!
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Recommended Credit:
Fair and Bad Credit
  • Build a credit history with the three major credit bureaus
  • Earn 2% cash back at restaurants and gas stations on up to $1,000 in combined purchases each quarter
  • Unlimited, automatic 1% cash back on all other purchases
  • All of your cash back rewards are matched at the end of your first year
  • This is a real credit card not a prepaid or debit card, it does require a refundable security deposit

Capital One Secured Mastercard

Capital One Secured Mastercard
Refundable deposit build credit
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Recommended Credit:
Bad Credit
  • Great for building credit - Reports regularly to the 3 major credit bureaus. 
  • Increase your credit line after making your first 5 monthly payments on time.
  • Refundable deposit required, $49, $99 or $200 based on your creditworthiness.
  • A deposit of $49 gets you an initial credit line of $200. Larger deposits additional get a higher credit line.
  • Pick your own payment method (check, online or at a local branch) and monthly due date.


  • Nominal deposit required.
  • You are guaranteed an initial credit line of a couple hundred dollars after making a security deposit, depending on your credit.
  • If you can't afford to put down the whole deposit upfront, you can pay it in multiple installments before activating your card.
  • Grow your credit limit if you make your first five payments on time.

How to apply Head over to the Capital One website to apply.

Be Thoughtful and Patient

There's no one right pace to build your credit. It comes down to your financial IQ, job security, expenses, savings, debt, and future prospects. In other words, the right pace depends on YOU.

That being said, there's no such thing as building credit really fast. Your credit score comes from the finance reports the major credit bureaus receive from all your lenders, and those are reported at most once per month.

Do's and Don'ts

DON'T apply for a lot of cards. There's a misconception out there that to build credit you need a lot of credit cards. In fact, such behavior will likely hurt your credit. As was noted in the FICO score criteria breakdown, 10% of your score is based on new credit; lenders see opening multiple credit accounts in a short span of time as a red flag.

DO pay your bills on time and in full. This is the most important thing you can do for your score. Payment history accounts for 35% of your FICO score so making sure you're on top of your bills is crucial. And while paying the minimum each month is an option, letting some of the bill roll over will do nothing to help your score while the APR will hurt your wallet.

DON'T max out your cards. Credit utilization — the amount spent over the credit limit granted — is another factor that influences your score. You want to keep this number between 20-30%. For example, if you have a $1,000 credit limit, you should only be spending $200-300 per month on the card.

There's no reason to wait. By now you should know whether a credit card, credit builder loan or other strategy is best to get you establishing credit. Just like everyone says your future self will thank you if you start saving for retirement in your 20s — the same goes for building credit.

Start now and don't hit any roadblocks in a few years when you need that car or second bedroom for a new family member.

Everyone starts with no credit – so get building today!