10.01.2024 By Amy Miller, AFC®

Building Credit for the First Time

Building credit can be a little intimidating. Not only are we faced with a very confusing system but also tons of misinformation and misconceptions. This leaves many of us – especially those trying to build credit for the 1st time - feeling a little lost and unsure of the best way to get started.

 

Building credit can be a little intimidating. Not only are we faced with a very confusing system but also tons of misinformation and misconceptions. This leaves many of us – especially those trying to build credit for the 1st time - feeling a little lost and unsure of the best way to get started.

Taking the right steps is key when just starting to build a credit report and score. Here’s what you need to know to get on the right path.  

Create Payment History

To start building a credit report and generating credit score(s), you must have accounts reporting, preferably to each of the three major reporting agencies – Equifax, Experian, and TransUnion.

Having an open and active account with a lender that is reporting your balances and pay history is a must when building a report and score.

Here are a few account options that beginners can use to start building a payment history and on the way to a healthy credit report and score:

Credit Builder Loans

Many local and online financial institutions offer loans designed to help individuals with no credit history. Opening one is a great way to start creating pay history. Credit builder loans work differently than traditional loans – instead of getting the funds right away or upfront, you get the funds after you have finished paying off the loan.

Secured Credit Cards

A secured credit card requires that you provide an initial security deposit that the lender will hold as collateral. They will issue a credit card, typically for the same amount although some have options for smaller deposits, that you can use to make purchases. You must maintain a low balance and make all payments in full and on time. A best practice is using the card for normal purchases and then paying it right away or shortly after. It’s important to only use the card to create a pay history - not to finance purchases and create debt.

Rent or Bill Paying Apps

Rent and bill reporting apps allow you to track and pay your normal obligations, like rent, utilities, and cell phone bills through the app that reports those payments as a loan or credit card to the credit bureaus (again, preferably all three).

Become an Authorized User

Becoming an authorized user on someone else’s account can be a good way to add payment history and quickly gain a score. You need to be sure this person is responsible, has good pay history, currently pays on time, and maintains low balances. There are downsides to this option – your report and score will be affected if they miss a payment, and many lenders won’t include these accounts when considering your creditworthiness since it’s not truly your debt or payment history.

Getting Started

It’s recommended to have 2-3 different tradelines reporting when trying to build credit. A good “mix” is to have a credit builder loan, a secured credit card, and possibly rent, if you pay it, reporting. Once you establish these accounts, you’ll want to be sure to make all payments on time and maintain low balances.

It takes around 6 months to generate a score with both FICO and VantageScore.

You’ll want to monitor your reports and scores regularly. You can get your free reports weekly from www.annualcreditreport.com. Both FICO and VantageScore offer free and paid options for monitoring your score(s).

We often hear that no credit is worse than bad credit, which can make many of us feel a little discouraged. Instead, think of it as having a clean slate and the ability to create your own credit future!

 

If you haven’t already, we encourage you to take the America Saves Pledge. After making your new spending & savings plan, you’ll receive support, reminders, and tips from America Saves that will help keep you on track toward achieving your goal.  

CHECK OUT OTHER SAVINGS JOURNEYS FROM SAVERS JUST LIKE YOU

SHARE YOUR SAVINGS TIP OR STORY WITH US

If we feature you in our newsletter, you get $50.

You May Also Be Interested In...

Take the America Saves Pledge

Make a pledge to yourself and create a simple savings plan that works.

Connect to a Campaign

Connect with a local America Saves campaign for one-on-one help and to learn more about savings initiatives and events in your area.

Sign-up for ASAW

America Save at Work is a hub of information and resources to help employers promote financial wellness for their employees.

Partner News & Updates

Join the America Saves email list to receive information about engaging content and events throughout the year.