How to Start Building Credit When You Have Little or No Credit History

You may have recently landed your first job. Or moved to the United States. Or perhaps you've only been using cash and debit cards for purchases. Maybe you've closed earlier credit lines and are looking to re-establish credit. And now you may be wondering how to start building credit.

In these situations, lenders may think you have a "thin file," i.e. not a long or substantial credit record. Though it can take some time, building up a good credit history is a worthwhile investment in your financial future. Here are some tips on how to start building credit.

1. Start building credit with one new credit card to help establish your credit history

While you may not initially get the best interest rate on your first credit card, you may not have to pay interest on your purchases if you pay the full statement balance by the due date each month. Timely payments on credit cards also can help improve your credit history.

2. Build credit with a secured credit card

Another way to begin to build credit with little or no credit history is through a secured credit card. This alternative to a traditional credit card requires a security deposit – between $200‒$2,500, for example – which may equal the amount of your credit limit and can be used to cover any outstanding balances if the account goes into default. Even if you only make small charges on your secured card but maintain a low balance and pay it in full by the due date every month, it can help you to start building credit.

3. Become an authorized user

Becoming an authorized user on another person’s credit card account can help you start building credit. If the credit card issuer reports the authorized user account to the credit bureaus, activity on the account will show up on your credit report, which can help you establish a credit score. You should contact the credit card issuer to make sure this is the case.

It is also important to make sure the primary cardholder is a responsible credit user because missing payments or other negative actions from the primary cardholder may show up on your credit history as well.

4. Apply for a store card

Some stores offer credit cards that may be easier to qualify for than traditional cards. Signing up for a store card at a place you frequently shop could be a good option to help build credit.

These cards often have higher interest rates than traditional credit cards, so consider whether having a store card is right for you. If you choose to use one, understand that paying off the entire statement balance each month and on time is key to avoiding high interest charges. If you miss payments, that can also negatively impact your credit score.

Additionally, it is important to remember that store cards are often limited to purchases at that store, so if you are looking for a card to use for more general purchases, a traditional credit card may be a better option.

5. Avoid applying for too many credit cards

Yes, having a credit card ‒‒ and making timely payments ‒‒ can help build your credit history, but applying for too many credit cards may work against you when you're trying to establish credit since it can signal risk to lenders. Furthermore, opening new credit card accounts can lower the average age of all your accounts in your credit report, which may negatively impact your credit score. Do your research and, if you’re looking for a new credit card, try to find the one that aligns most closely with your lifestyle and spending habits.

6. Report your monthly rent payments to credit bureaus

Paying rent on time each month can also help build your credit. Rental payments are not usually included in your credit report, so you may need to request that your landlord reports these payments through the requisite services. There are also third-party rent payment services that might report to the credit bureaus, though they could charge monthly or annual fees.

How long does it take to start building credit for a beginner?

Credit history isn't built in a day. The major credit scoring models typically require 2-6 months of credit activity to create a credit score, though it may take longer to reach a credit score that could be considered good. With the help of the tips above, you can take your first steps to start building credit today.

Disclosure: This article is for educational purposes. It is not intended to provide legal, investment, or financial advice and is not a substitute for professional advice. It does not indicate the availability of any Citi product or service. For advice about your specific circumstances, you should consult a qualified professional.

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