People with a limited or nonexistent credit history are frequently in a bind when they apply for a loan or a credit card. Lenders and creditors are often hesitant to extend credit to an unproven applicant, as there is no way to verify the applicant’s reliability or trustworthiness. If this describes your credit situation, you might want to know how to starting building credit quickly.
Gradually building credit requires making payments on time, keeping credit card balances low and monitoring your credit report for errors. (You can view two of your credit scores, updated every 14 days, for free on Credit.com. Checking your scores will not harm them in any way.)
“Credit scores are based on your history,” said Lee Gimpel, co-creator of The Good Credit Game, a curriculum kit for financial educators. “You’re better off if you can show a long, consistent period of responsible credit usage over years versus cramming to raise your score in a short period.”
However, there are some quick actions you can take right now to start building your credit. Here, we answer some of the most common questions about quickly jump-starting the credit-building process.
I Need a Credit Card to Start Building Credit, but I Can’t Qualify. What Should I Do?
If your lack of credit history keeps you from qualifying for a traditional credit card, you have a few options:
Become an Authorized User
Someone with good credit can add you as an authorized user to a credit card. Many card issuers report authorized users to the credit reporting agencies (you’ll want to double-check that the card issuer in question does this). The credit card can appear on your credit report just as if it was your own. This helps build the authorized user’s credit as the primary account owner makes payments. It benefits both payment history and your credit utilization rate.
If you’re considering this strategy, be careful. If you use the card irresponsibly, the primary account holder will be on the hook for the charges — and their credit could suffer.
Get a Secured Credit Card
Secured credit cards are opened with a security deposit, which is usually equal to your credit limit on the card (for instance, a $500 deposit would get you a $500 line of credit). Otherwise, secured credit cards work just like traditional credit cards, with monthly payments and interest charges.
These cards are easier to obtain than normal credit cards, but they build your credit just the same. Over time, the card issuer could even increase your credit limit at no extra cost or offer you an unsecured card.
How Can I Make the Most of the Cards I Have to Build Credit?
If you already have credit cards, there are a few quick actions you can take to maximize their potential for building your credit:
Request a Credit Increase
You can ask your credit card provider to increase the limit on your cards. If you have a history of timely payments with your card provider, they may be willing to grant your request. By upping your credit limit, you’ll improve your credit utilization rate, which contributes to your credit score. (Note: The request could result in a hard inquiry on your credit report, which can ding your score.)
It’s important to remember this tactic will only work if you don’t increase your spending in kind. If you go on a spending spree as soon as your limit rises, it won’t make much of a difference. In fact, that extra debt could hurt your score — and your wallet.
Pay Down Balances
The balance you carry on your credit cards also affects your credit utilization rate. Keeping your balance low will help maximize the potential positive benefits to your credit.
“Pay down your balances,” Gimpel said. “A general rule of thumb is to not use more than 30% of your available credit.”
Can I Use a Loan to Build Credit If I Don’t Have Any?
Certain loan types can also help you build credit, even when you can’t qualify for a traditional loan:
Find a Cosigner
A cosigner can use their good credit to help you secure a loan, which you can then use to start building your credit. Your cosigner may want to be careful. They should understand that they are responsible for the debt if you stop making payments, and this could damage their credit score and finances.
Get a Credit-Builder Loan
Credit-builder loans are specifically designed to help people who need to build credit. Basically, you put a small amount of money into a savings account at a bank and then make fixed monthly payments until you’ve paid off the amount, at which point you get your money back.
The bank can report your payments to the credit bureaus, which helps build your credit (again, you may want to double-check that the bank reports to all three major credit bureaus).
How Can I Improve My Credit Score?
As we noted above, building credit requires making on-time payments, keeping credit card balances low and monitoring your credit report for errors. As your score improves, you can work on improving other aspects of your credit report, such as adding a diverse mix of accounts to your portfolio and keeping accounts open long enough to build up a history.
How Do You Get Good Credit?
To build good credit, you need to have credit. You also need to prove you can manage the credit responsibly. You can establish a solid baseline of credit within 6 to 12 months by consistently making on-time payments. However, you’ll need to go above and beyond that to maintain your credit standing long-term. That requires responsibly managing a variety of accounts over time, such as credit cards and auto loans, limiting credit inquiries until your score can handle them and monitoring your credit reports so you know how you’re doing and what areas need to improve.
What Is the Best Credit Card to Build Credit?
If you’re unable to qualify for an unsecured credit card with reasonable rates, a secured credit card can be a great option. Just know you’ll need to make monthly payments as you would with a regular credit card and will be required to put down a security deposit, which serves as the card’s credit line. With a secured credit card, you’ll have a pre-set credit limit and your activity will generally be reported to the three major credit bureaus. In this way, you can improve your credit score by making your payments on time and keeping debt levels low.
What Is the Best Secured Credit Card?
The best secured credit card for you will vary based on your creditworthiness at the time of application and your spending habits. Just remember, as we explained earlier, you’ll need to make monthly payments as you would with a normal credit card and will be asked to put down a security deposit in order to secure the card. You can view our picks for the best secured credit cards here.
This article has been updated. It was originally published January 3, 2017.