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Building a Credit Score From Scratch: 5 Easy Steps

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Building credit can be tricky. Without a credit card, it’s hard to build credit history. Without credit history, it’s hard to qualify for a credit card. But if you start at the bottom and use credit responsibly, you can slowly work your way up to an excellent credit score. Just follow the Nerds’ step-by-step plan to build a solid credit history.

Step 1: Understand the factors that influence your FICO score

The FICO score is the most commonly used credit scoring model. Your FICO is made up of these five factors:

  • Payment history (35%): It’s important to make your payments on time. Late payments can hurt your credit score and cost you in fees and penalty interest rates.
  • Credit utilization (30%): Keeping your debt balances low in relation to your credit limits is important for good credit health. Generally, you should keep your credit utilization below 30%. And remember, balances are often reported mid-billing cycle, so it’s a good idea to keep your utilization below 30% at all times.
  • Length of credit history (15%): The longer your credit history, the better because potential lenders will see you as more creditworthy. Your length of credit history is calculated based on the age of your newest account, the age of your oldest account, and the average age of all of your credit accounts.
  • Types of credit in use (10%): The mix of different credit accounts (such as auto loans or mortgages) you have will impact your credit in a small way. As a general rule, diversification is better than having only one type of credit account.
  • New credit (10%): Applying for too many credit accounts at once can bring your score down. Each new credit application results in a new credit penalty, so try to avoid applying for multiple accounts in a short period of time.

The data that influences these factors comes from your credit report. You have credit reports from each of the three major reporting agencies — Experian, Equifax and TransUnion — and you have a FICO score from each as well. These scores may vary from one to the next if (a) one of your reports contains an inaccuracy or (b) your lender doesn’t report to one or more of the agencies.

Step 2: Learn the guidelines for building credit

Lenders use your credit score to determine your financial trustworthiness. Practice these good credit habits to build your score and prove that you’re creditworthy:

  • Make 100% of your payments on time, not only with credit accounts, but also with other accounts, like your utility bills. Bills that go unpaid may be sold to a collection agency, which will hurt your credit.
  • Keep your credit card debt low. Whether you carry a balance from month to month — and the Nerds strongly urge you to never carry a balance — don’t let your debt balance exceed 30% of your credit limit at any time. Remember, balances are often reported mid-billing cycle, and a high balance means high credit utilization.
  • Use your card regularly. Credit accounts that go unused may be closed by issuers after a certain period of time. When an account is closed, your credit utilization will go up and your length of payment history may go down.
  • Keep accounts open for as long as possible. Unless one of your unused cards has an annual fee, you should keep them all open and active for the sake of your length of payment history and credit utilization.
  • Avoid opening too many accounts at once; it will lower your average account age.
  • Check each of your credit reports annually for errors and discrepancies.

Step 3: Know how to check your credit reports and scores

You’re entitled to one free credit report a year from each of the three bureaus. Many sites offer you free reports, but the legitimate site is Pull your reports from Experian, Equifax and TransUnion and use our guide on how to read your credit report to make sure nothing’s amiss.

Your credit report doesn’t contain your credit score, but there are several ways to get it. Let’s start with the free options:

Free score services don’t provide you with access to your FICO scores. Rather, you’ll receive proprietary scores based on a non-FICO scoring model.

If you don’t have a credit account with one of the above lenders, you can purchase your FICO score(s) for a small fee. We recommend purchasing your scores directly from the three major credit bureaus:

Step 4: Get a credit card for no or low credit

OK, now that you understand the factors that make up your score and how to influence them in a positive way, it’s time to actually start building credit with a credit account. You have a few options for your first credit card:

Apply for a secured credit card

If you’re flying solo, you’ll likely need to start with a secured credit card. A secured card is backed by a cash deposit that’s usually equal to your credit limit. You’ll use the card normally: buy things, make a payment on or before the due date and incur interest if you don’t pay your balance in full. Your cash deposit is used as collateral, so don’t treat your secured card like a prepaid debit card. And don’t worry, you’ll receive your deposit back when you close the account.

Nerd note: Secured credit cards aren’t meant to be used forever. The purpose of getting a secured card is to build your credit enough to qualify for an unsecured card, a card without a deposit and with better benefits. Choose a secured card with a low annual fee, and make sure it reports to all three credit bureaus. Here are a few of the Nerds’ favorite secured credit card options.

Get a cosigner on an unsecured card

If you want to skip ahead to an unsecured credit card, you’ll need a cosigner. Remember, your cosigner’s credit may be tarnished if you don’t use your card responsibly, so make your payments on time and don’t max out the card.

Become an authorized user

A family member or significant other may be willing to add you as an authorized user on his or her card. As an authorized user, you’ll enjoy access to a credit card and you’ll build credit history, but you aren’t legally obligated to pay for your charges.

Nerd note: Ask the primary cardholder to ask his or her issuer if authorized user activity is reported to the bureaus. It generally is, but you’ll want to make sure, otherwise your credit-building efforts will be for naught. Check out this article about which issuers report and which don’t.

You should come to an agreement on how you’ll use the card before you’re added as an authorized user. If the primary cardholder adds you to his or her card but expects you to pay your share, make sure you do so even though you aren’t legally obligated.

Step 5: Be patient

If you’re using your credit card responsibly and following our guidelines above, all that’s left to do is be patient. Building an excellent credit score takes time. In the meantime, enjoy watching your score creep up from nothing to the 700-800s.

Bottom line: Before you get your first credit card, you should have a good understanding of how your score is calculated and how to use credit responsibly. You should also know how to get access to your credit reports and scores. After that, you can start building your credit with a secured card or an unsecured card with a cosigner, or by getting added to a loved one’s credit account as an authorized user. And remember to be patient: Building credit takes time, but it will happen as long as you’re making the right credit moves.

Image via iStock.

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  • Ruchit Vachhrajani

    I came to US as a student back in 2006. Obviously no credit history! Heard about credit scores and paying on time helps etc!

    At times, you should look for guidance instead of doing research urself – I thought I was smart. Applied to a credit card – denied! And thenr eceived many “approved” letters and asking me to apply – applied – denied!

    When I talked to someone about it – I came to know that by applying to too many places, I actually ruined the score that I had! Everyone has some score, even in 500 (if u r paying taxes and have some utility bills on ur name).

    I applied to citicards and then sent a letter explaining the situation that I do have a job, these have been my paystubs and currently studying and working part time in a university allowed to work for just 20 hours (as per f1 visa).

    They called me back after 2 days asking for the currently scheduled classes and fees paid receipts. I did that and got the limit of $1200!

    After that – anyone in my room wanted to spend money – I would use my card (and get cash from them, of course). I could do online purchase for them and the score went up n up!

    As of now I have 2 citicards, amex, capital one, discover, bank of america creditcard, some first bank card and few store cards like macys etc that my wife decided for me to apply!

    Whether u pay in time or not – just get credit cards!!!

  • Pinnacle Federal Credit Union

    Good article. Learning how to build a good credit score early on in adulthood is important. It’ll be necessary to take out a loan or even secure a lease.

  • amber

    No it will come back to bite you. It may not be in the near future but it will come back at you. Many people do this with revolving credit and find their credit to be awful down the road thinking they don’t have to pay for their debts. I guess, if you’re not going to remain in America. I don’t know how they’d track you down if you return home. I’m sure they’ll just make it harder for subsequent foreign borrowers who really do intend to pay off their debts to get a line of credit. So, essentially, you made it harder for someone else. Yes getting a credit card helps build your credit. However, running the credit debt up is not going to help you and paying it late will hurt your score. But I guess if today is all that matters to you (and not a home, car, business loans, etc in the future) then have at it. Also, I feel awful that people are taking advantage of your credit. They aren’t obligated to pay back what you will ultimately owe. It’s a loan. And you do pay for that loan and if you ever want people to lend to you, then you would be well advised to pay it back.

  • aimee

    I’ll add my own anecdotal story.

    I had bad credit due to a partially unresolved identity theft situation (family member was involved, difficult to get cleaned up!). I got a secured Capital One card with a $300 limit. I had 10-20% utilization per month, waited for the balance to be posted, and then paid it off in full.

    5 months later, I am getting credit card and loan offers in the mail.

  • Marty

    This makes no sense to me, my bank knows how much is on my paycheck before I do so what is the point in only making partial payment if I can pay the whole debt? That to me is good credit. My banker said a “rolling balance” , another words “make payments” is the way to go. What I’m hearing is the way to a good credit score is to stay behind and make payments.

  • Emma Collins

    Very helpful, thank you!

  • Emma Collins

    Really? Well, thank you, now I have an idea of how long it might take.

  • Mitch Dalton

    yes. stay behind and make payments. banks and credit companies make money by lending you you money. put yourself in their shoes. say you lend a friend $100 but only if he agrees to pay you $105 back in the future. so after a day or so he does… whoopee. you made $5. but another friend keeps borrowing money. he pays you here and there and he really is good for it based on his history with you. he keeps coming back. $20 here, $90 there. after a while there will be incentive to give him a better rate because now your friends want to lend him money. now there’s competition. he’s made himself an attractive borrower. he’s built his credit so you WANT to give him good rates. old friend that pays you $5 the moment he borrows is lame. he doesn’t make you money.

  • CruiseChristopher

    State Department Federal Credit Union charges low interest rates on share-secured credit cards and share-secured installment loans (“shares” is the credit union’s term for “deposits”) and does not charge a fee. Even if they did, it would make sense if it helped you build your credit history. Use the secured cards and pay them off every month. Get a secured installment loan and pay it off quickly, then get another and do the same thing and another. And before you know it you have a couple of years of credit history on a secured credit card and secured installment loans. Also Capital One has low-limit unsecured credit cards for no annual fee. Check that out.

  • Ben

    I didn’t have a credit history and decided to get a secured credit card. After 6 months of on time payments I was able to be approved for a mortgage on a house. Only after that mortgage went through did I decide to try and get a regular credit card. I would say in six months you should be able to build some great credit.

  • amber

    It depends. Do you want more credit or more available cash (that’s yours). I’m not a fan of debt, so I always advise against debt. Save up and pay cash. When you borrow, you pay. My husband got a large lump sum of cash one year he was laid off. I said let’s pay off our house note. He says, “No, I can write it off on taxes.” We did the math. So we save a couple of thousand dollars a year over the remainder of the life of the loan (which was 15/30 year note). Or well over a $100K not paying interest fees to the bank. I don’t know everyone’s so caught up in credit, it seems they’ve actually forgotten the value of a dollar. Credit and debt keep you broke and dependent. It’s a brilliant plan (for them), it’s a foolish plan (for you).

  • Chas Morr

    that’s a lie, I had a 0 interest in paid in full before a year from furniture store $4000
    I paid the whole thing off before the 1 year, guess what NOTHING WAS EVER REPORTED. When I asked what’s up they said ” because you paid it in full” So you are WRONG! that’s a fact!

  • Chas Morr

    There is full evidence of it! Never pay it off in full – they will never show you had a balance. Have you ever read a credit report?, it never says “the person barrowed $400.00 and paid it off in the same month” it shows you have a $1000 limit and each month you still have $1000 limit, just like you never used it, it just shows open and nothing owed. Use the card pay everything leaving 25% unpaid. then pay that a few weeks later. the card companies then report that balance. then the next month it shows 0 with $1000 limit then use it again, pay it all except 25% for a few weeks past the due date, then pay that off bringing it to 0 – each one of those will show up exactly like I said. Pay the whole thing off it just shows open $1000 limit nothing else.
    Like you never used it.

  • Chas Morr

    Credit reports only show on time or not on time and days past due. Nothing else. They could care less about early! That’s not a box on the report. Different accounts meaning Credit Cards, then a store card maybe ever a small loan. That’s 3 different types of accounts.

  • Chas Morr

    Not such a good idea, they have no clue you used it if you pay it in full. Your report will show $300 limit amount owed will say 0 and the next month will come and the report will say same thing Just like you never used it. Report shows open dates the balance the past due days that’s it. Not one credit agency show during the month. Have you ever read a report? – there is no area or box for “oh what did they use during that month” it’s just not there. Use the card pay everything except 25% of max. then wait a few weeks pay the whole amount off. then wait another month before you use it again.
    get another type of account like store or small bank loan and if you have all 3 of those you will be over 750 within 2 years. Hang tight stay focused and 750 here we come.

  • Chas Morr

    That’s why, you can’t use over 30% of your limit. That will bring down your score. Most people get 2 or 3 cards and flip flop them, meaning pay the whole thing off with other card, then next month pay that one off with 3rd card. keep doing that until you have the cash to pay your card down to no more than 25%; once you went over the 35% your score got hit. Now you need to spend time getting that screw up back.

  • Chas Morr

    You need to get at least 3 cards all with the same or close to same limits. never pay them all off, never go over 30% of limit. Keep small balance then pay it off a few weeks after the due date so it gets reported. Get a store card and a small bank loan will really bring that sucker up. Open a bank account with $1000 cash and barrow $1000 using that then pay it off in 6 months or so. That will bring you up so high you might a 0% finance charge from some model cars.

  • Berneigh

    Whoa, there. No need to get all huffy. The fact that your 0% interest loan wasn’t reported in the first place simply means that the furniture store didn’t report it. Credit card companies report your activity monthly.

    Also, you’re assuming the credit card companies wait for you to make your payment before they report your activity. They usually report within a few days of your statement date, so if you pay it in full on the due date, which is around 3 weeks later, they reported the full statement amount and you pay no interest. You never have to pay interest to improve your credit score.

  • Sarah

    This is not true. I have a credit card that I pay in full every month. On my credit report, it always shows the amount charged as of the statement date, never $0.00. I pay in full by the due date and pay no interest. There is absolutely no reason to waste money on interest if you are able to pay in full. It does not help your credit to do so.