How to Build Credit

What is the best way to build credit if you have none?

Read full question
Bill's Answer: Answered by Mark Cappel

If you do not have a credit score because you have not established credit yet, the good news is that you probably are not haunted by an array of unpaid debt. Here is a quick overview on credit scoring and six simple ways to build and maintain credit.

Credit scores are calculated based on several factors, as seen in the table below.

Three primary factors in a credit score
Repayment history A history of not paying debts, or not paying on time each month, will lower scores.
Amount of credit used Credit lines near their limits, or maxed out, affect credit scores negatively .
Amount of overall debt Too much debt makes it less likely you could pay off additional debt. Too little debt offers creditors limited payment history, making it difficult to judge credit worthiness.

Six Steps to Building and Maintaining Credit

1) Obtain and use a credit card wisely

To start building good credit with your credit card, you will need to obtain the card, use it, and make the first payment before you will see any effect on your credit score. You may have to sign up for a “secured card” in the beginning, which means you will be required to deposit money (typically around $300) into an account controlled by the credit card company or bank in order to obtain the card. This deposit "secures" any debt you place on the card. It is a way for a creditor to take less risk when dealing with someone who has poor credit or no credit.

A secured card is just as good as any other credit card when it comes to building credit, for as with any credit card, the payment history on your secure card will be reported to the credit reporting agencies. So by making on-time payments (on-time payments are the No. 1 factor in determining a credit score) and carrying a low debt load (your debt balance-to-credit limit ratio is also a big credit score component), you will be building the history and profile that produces good credit.

Another way to build credit from scratch can include getting a low-limit retail store card or a gas card. Just be sure to pay the monthly balance in full so as to avoid the high monthly interest charges that many of these types of cards carry.

2) Review & understand your credit report

Review your credit report once a year. The higher your credit score, the better. A score below 680 usually results in a borrower being charged a higher interest rate or denied credit. If the report includes items that are inaccurate, request the report be corrected. You can receive a free copy of your credit report at and the Federal Trade Commission has a terrific Web site that contains a wealth of information regarding credit reports (including how to address inaccuracies) at

3) Take a loan

Another good way to build credit history is to pay off a small loan. Borrow from your bank or credit union to purchase a used car or a larger purchase, such as an appliance. Pay the loan on time and in full. Pay any student loans on time every month. (Remember: On-time payments are the No. 1 factor in determining a credit score.)

4) Build job history

A stable job history is another factor that lenders will consider when giving a loan. Creditors look at job history to understand a consumer’s stability and income.

5) Protect yourself from identity theft

Identity theft is at an all-time high, and it can destroy credit ratings. Remember that identity theft occurs both “offline,” and through the Internet. Protect yourself from unscrupulous individuals who could go through your trash, steal account numbers online or get personal information through complex “phishing” scams. Record all important financial information and account numbers in a secure place. Shred all documents that contain personal information. Never give out personal information in e-mails or in a phone call you did not initiate.

6) Create — and stick to — a budget

A good way to maintain a healthy financial lifestyle is to create — and stick to — a household budget. Many people fall into credit score disarray by spending beyond their means, building up debts, and maxing out credit cards. In budgeting, list ongoing monthly expenses (fixed expenses like rent or mortgage payments). Add variable expenses that are “must-buys” (food, gas, medicine). Leave two categories for savings and spending cash (for unexpected expenses and entertainment). Add monthly net income (the amount left after taxes and other paycheck deductions such as health insurance and 401(k) contributions). A free budget guide is available at

Good luck as you venture forth into the world of credit, and I hope that the information I have provided helps you Find. Learn. Save.



Rate this article
Not helpful

Comments (3)

Steele .
August 21, 2010
Good article, but in todays economy, I have to admit, I never assumed credit was so difficult. Recent high school grad, just turned 18, just got my real estate license, had worked minimum wage for a year. Bank with wells fargo, have a checking & savings account, done so for a year. Refuse to offer me credit. Offered a secured card, $300 deposit. If I had $300 sitting in my account, would be looking at credit at 18 years of age. Applyed to many department stores, gas cards, big & small banks, even joined a credit union. All refuse to lend, stating "lack of credit history", yet every card/loan you apply for, is specifically for people with no credit history. Had a credit union ask for a cosigner. It's not even the fact that I don't have one, who, in today's economy, really has good credit??? May lesson a bank's liabilities, destorys the few individuals out there trying to build credit. If the lowest person says no, who is going to say yes...ever?
Sara M.
Beverly Hills, CA  |  February 04, 2011
I understand what you mean.In my late 20s I'm finally beginning to build credit.When I was in college I borrowed money but the interest rate was so high I just basically paid it all off and didn't get to establish any credit.I have banking with Chase and they too refused me a credit card until I realized it's best not to apply for a credit card with your own bank.I tried Sears, a gas card etc.I thought about taking out a loan with Chase but didn't care for the interest rate.No one I knew wanted to co sign a loan for an 18 year old.Not even my parents.Nothing, until I found a friend with great credit who has been building up credit since he was 18 cosign a piece of furniture for me, a bed in particular, he financed it under his name and I was also cosigner, he was the primary, we financed it with Wells Fargo Financial and I made it key to make my minimum plus more monthly payments to build me credit worthiness.I could pay off everything if I wanted to but making monthly payments helps show you can keep up with your payments.Finally 5 months after co financing capitol one sent me a credit card offer and it was approved!So this should build my credit even more, not to mention paying rent, electricity etc.
Ray C.
Raleigh, NC  |  August 19, 2011
I totally understand, building credit should start when we are young or else it would be a pain. Building credit can allow you to many things. I love this site. You can also start paying for stuff using installments or get car loans.
Waiting for comments to load Loading more comments
Thanks for your feedback!

Get Your Credit Score


Tool Box   Easy to use resources to help you find solutions to your money questions