How to Build Credit from Scratch

Start strong with secured cards, credit-builder loans, and on-time payments

For many Americans, building credit from scratch feels like an impossible catch-22: To qualify for credit, you need a credit history. However, before you can build a credit history, you first need to be approved for credit.

If you’ve just turned 18, recently moved to the U.S., or are reestablishing yourself financially, you might be facing this challenge right now.

The good news? With a few proven strategies—securing your first credit account, leveraging credit-builder loans, and above all, making every payment on time—you can start building a strong credit foundation.

This guide covers key steps, helpful tips, and common mistakes to avoid, giving you the tools to take charge of your financial future.

Why building credit matters

Think of credit as your financial reputation. Most lenders, landlords, and even some employers look at your credit report and score to decide whether to trust you as a borrower, tenant, or employee.

Good credit opens doors not just for loans and credit cards, but also for getting approved for an apartment rental, setting up utilities, and sometimes securing lower insurance rates.

Without a credit score—or with a poor one—you could face higher interest rates, bigger security deposits, or outright denials. That’s why it pays to start building your credit as soon as possible.

What is a credit score and why don’t I have one?

Your credit score is a three-digit number (usually ranging from 300 to 850) used by banks, lenders, and other institutions to assess your creditworthiness. The information in your credit report—such as payment history, balances owed, and account age—determines your score.

No credit vs. bad credit

It’s common to confuse “no credit” with “bad credit,” but they’re not the same. “No credit” means there isn’t enough information in your credit report to generate a score. “Bad credit” means you have a track record of late payments, bankruptcies, or other negative marks.

While both situations can make borrowing difficult, having no credit can be easier to fix because you aren’t starting with negative marks—you’re starting with a clean slate.

How to build credit from scratch: A step-by-step guide

Ready to take control of your finances? Here’s how to get started and establish your very first credit history.

1. Open a secured credit card

What is a secured card?

A secured credit card works like a regular credit card, but with a twist: You’re required to put down a refundable security deposit, typically equal to your credit limit (for example, a $300 deposit for a $300 limit). This deposit protects the card issuer and makes it possible for people with no credit history to get approved.

Ways to build credit with a secured credit card

• Only use your card for purchases you can comfortably pay off. Use the card for small, manageable expenses—think groceries or gas—and never spend more than you can pay off in full.
• Pay your balance on time, every month. The most critical component of your credit score is your payment history. Even one missed payment can set you back.
• Keep your credit utilization low. Credit bureaus prefer when you use under 30% of your total available credit limit. With a $300 credit limit, aim to keep your balance under $90.
• Reevaluate after 6-12 months. Some banks let you “graduate” to an unsecured (regular) card if you’ve managed your secured card responsibly. You’ll get your deposit back if you close the account with a positive payment history.

Watch out for fees

Not all secured cards are created equal. Stay away from credit cards that have high annual fees, extra charges, or upfront application fees. Read the terms carefully and shop around for cards with straightforward, low-cost terms.

2. Build credit with a credit-builder loan

What is a credit-builder loan?

A credit-builder loan is a special type of loan designed specifically for people new to credit. Here’s how it works: Instead of handing you cash up front, the lender puts the loan amount into a locked savings account. You make regular payments for 6-24 months. Once you’ve paid off the loan, you get access to the funds. Your on-time payments are reported to the credit bureaus, steadily building your credit profile.

Benefits

• Safe and predictable. You’re not risking debt, because you don’t get the money until you’ve paid it off.
• Builds payment history. Like credit cards, your consistent on-time payments help establish a solid track record.
• Accessible for beginners. These loans are often available at community banks and credit unions, even if you have no credit.

Tips for success

• Choose a loan amount and payment plan you can easily manage.
• Set up automatic payments or calendar reminders to avoid missing a due date.
• After repaying the loan, your savings can be used for an emergency fund or another goal.

3. Become an authorized user or use a co-signer

If you have a family member or trusted friend with good credit, you may be able to piggyback on their positive history.

Authorized user

As an authorized user, someone adds you to their credit card account. You get a card in your name, but the primary cardholder is responsible for payment. The card’s history is reported on your credit report, helping you build a positive payment record.

Keys to success

• Make sure the card issuer reports authorized user data to the credit bureaus (not all do).
• Only pursue this strategy with people who use their card responsibly and consistently pay on time.
• Mistakes or high debt on that card could hurt your credit, too.

Co-signer

Alternatively, you can ask someone with strong credit to co-sign a loan or credit card application. As a co-signer, they are promising to repay if you don’t, making the account more likely to be approved.

Be aware: If you make late payments, not only will it hurt your credit, but it will also damage your co-signer’s credit and their relationship with you. Only take this step if you’re fully confident you can manage the account responsibly.

4. Pay every bill on time (every time)

This cannot be stressed enough: On-time payment is the single most important factor in building and maintaining good credit. This applies not just to credit cards or loans, but to any bill that may get reported to the bureaus, such as utilities or cell phones, if they go unpaid and are passed to collections.

How to avoid missing a payment

• Set calendar reminders for all due dates.
• Sign up for automatic payments where possible.
• If you ever anticipate trouble making a payment, call the creditor in advance and ask for hardship options.

5. Diversify your credit mix

Once you’ve successfully managed a credit card and perhaps a small loan, lenders like to see that you can handle different types of credit. Credit mix (for example, having both installment loans and revolving credit cards) accounts for about 10% of your FICO score.

A few things to keep in mind

• Only apply for new credit when you need it.
• Avoid opening several accounts at once; each application results in a “hard inquiry,” which can temporarily lower your score.

6. Monitor your credit and practice smart habits

Keep credit utilization low

Remember to use just a small portion of your credit. Keeping your utilization ratio low (ideally below 30%) signals that you’re in control of your credit, not stretched thin financially.

Check your credit reports regularly

• Federal law gives you free access to your report from each of the three main credit bureaus (Equifax, Experian, and TransUnion) once a year.
• Review your reports thoroughly to keep track of your transactions.
• Check for errors, unauthorized accounts, or incorrect late payments and dispute them promptly.

Be patient—good credit takes time

Building good credit isn’t instantaneous. Lenders want to see a pattern of responsible behavior over time, typically at least 6-12 months of on-time payments, before you see noticeable score improvements.

Common pitfalls to avoid

• Applying for too many accounts at once: Each application can temporarily lower your score, and multiple attempts can make you look “risky” to lenders.
• Missing or making late payments: Just one missed bill can haunt your credit for years. Automate payments to prevent mistakes.
• Closing old accounts too soon: The age of your credit history impacts your score. Consider keeping older cards open and dormant if they have no annual fees.

Building credit without a traditional “starter” account

If you’re a recent immigrant

You may bring excellent financial habits from your country of origin, but U.S. credit bureaus don’t have access to foreign records. Start with a secured card, look for credit-builder loans at credit unions open to all residents, and explore U.S.-based services that accept alternative data, such as bank payment or rent reporting.

If you’re a young adult

Begin early with a student credit card or a secured card. Consider having a parent add you as an authorized user. Even minor positive activity will help you down the line when you need to finance a car, rent your first apartment, or get a mortgage.

If you don’t qualify for any credit products

If you don’t qualify for anything yet:

• Try a local credit union—they’re often more flexible than big banks.
• Start with non-traditional credit-building services, like rent or utility reporting.
• Don’t get discouraged—responsible use of even the smallest account will get the ball rolling.

A Realistic timeline: What to expect

Months 1-3:

• Open your first secured card or credit-builder loan.
• Become an authorized user if possible.
• Set all bills to autopay and keep utilization low.

Months 4-6:

• Check your credit reports for the first signs of activity.
• Continue using credit sparingly and making payments on time.

Months 7-12:

• You may start to see a credit score appear. If you see offers for unsecured credit cards, evaluate them carefully—don’t rush.
• Consider keeping your first accounts open to build account age

After 1 year:

• If all bills are paid on time and utilization is low, you should have solid “starter” credit.
• Stay the course: Credit age, on-time payments, and mixed positive activity will keep your score growing.

Taking your next financial steps

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