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Here is the age-old dilemma: How can you prove you are credit-worthy if no one will give you the chance to prove it? Without a credit history, it can be difficult to get a credit card, a car loan or a home loan. These days, even potential landlords and employers ask to review your credit history before rentin you an apartment or giving you a job. Imagine not being able to get your dream job just because you haven’t built any credit. Let's overcome these challenges by finding ways to build your credit.

 

The first way we recommend to build your credit is to get a secured credit card (more info below).

 

The second way we recommend to build your credit is to get a co-signed card. People typically get a parent to be a co-signer on the credit (more info below).

 

The third way we recommend to build your credit is to seek out someone who already has a credit card and ask them to make you an authorized user. People typically get a parent to make them an authorized user on their card (more info below).

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The fourth way we recommend to build your credit, which does not require obtaining a credit card, is to take out (1) a credit-builder loan, (2) a secured loan or (3) a co-signed loan (more info below).

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The fifth way to build credit is to take the rent, phone and utility bill payments you are already making and get them to count towards your credit history. Sometimes this can be done for free. In other cases, there might be a charge for this (more info below).

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Obtain a secured credit card

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Many people find that the easiest way to build their credit is to obtain a secured credit card. By making a cash deposit on your credit limit at the very start, you have given the credit card company an assurance that it will not lose its money. The credit limit is typically equal to the money you deposit. The amount that you are allowed to deposit differs from card to card. A required $200 minimum deposit is typical. Lenders like Avant, Deserve, Jasper and Petal offer “alternative credit cards” that do not require a security deposit.

 

Secured credit cards can be used like other credit cards, but the trick is you will only receive your deposit back (1) when you close the account or (2) you convert the secured credit card into an unsecured credit card. It is better to convert the card to an unsecured credit card because closing an account can hurt your credit score. Also, the older your credit accounts are, the higher your credit score will be, up to a point. So keeping the first credit cards you ever obtained for decades is probably going to help you have a higher credit score.

 

Converting your secured credit card to an unsecured credit card might take a bit of work. Contact your lender directly and ask for a conversion. Tell them you would like to be converted to a credit card that has no annual fee. Tell them you must receive a full refund of your original deposit. You might need to contact them more than once to receive your deposit back. Finally, ask to keep the same account number. That way, your credit history will continue to build.

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Apply for a credit-builder loan or a secured loan

 

As the name implies, a credit-builder loan is designed to help you build credit from the ground up. The way these usually work is this: The lender holds onto the money you borrow. When the loan has been paid in full, the funds are released to you. It sounds like a bad deal except for this: Every payment you make is reported to credit bureaus. This allows you to build your credit from scratch. You can find these kinds of loans at credit bureaus and community banks. You can even find them online with companies like Self.

 

ANOTHER OPTION. Here is something similar you can try: If you have a savings account, ask your bank or credit union if you can get a secured loan for credit building. You would then use the money in your account as collateral for the credit building loan. The nice thing about taking this route is that your interest rate might be lower than it would be with the standard credit building loan.

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Recruit a co-signer

 

Typically, people will get a parent or an older sibling or an aunt or uncle to be their co-signer. The catch for the co-signer is that they are on the line if you are unable or unwilling to make payments for some reason. Building up trust with a potential co-signer may be necessary.

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Piggyback on someone else’s account as an authorized user

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This is similar to having a co-signer. Typically, a family member or spouse adds you as an authorized user to one of their existing credit cards. Once you become an authorized user of their card, your credit history inherits that card’s payment history. This means you only want to be added to cards where the balances have always been paid on time.

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BECAUSE YOU AUTOMATICALLY INHERIT THE CARD’S CREDIT HISTORY, BEING ADDED AS AN AUTHORIZED USER CAN FAST-TRACK YOU TO HAVING A FICO SCORE RIGHT AWAY.

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Before you are added as an authorized user, find out for sure that the credit card company reports authorized user activity to the credit bureaus. If the card doesn’t report to credit bureaus, you might not be building your credit at all.

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If your family member or significant other is nervous about giving you a card, they don’t have to actually give you the card. You do not need to possess the card or use the card in order to benefit from being an authorized user. Tell your family member to keep the card that the credit card company issued to you. That way, they will have peace of mind while you will get the benefit of building credit.

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Get credit for paying your current bills

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Find a rent and utilities reporting company like LevelCredit. These types of companies will use bills you are currently paying and try to put them on your credit report. This will aid you in building a credit history of on-time payments. However, there is not guarantee the credit bureaus will use your rent and utilities payments in determining your credit score. Not every credit score takes these payments into account, but some do, and that may be enough to get a loan or credit card that firmly establishes your credit history for all lenders. NOTE: COMPANIES LIKE LEVELCREDIT MAY CHARGE MONTHLY OR ONE-TIME FEES THAT YOU MAY PREFER TO AVOID BY CHOOSING ANOTHER WAY TO BUILD CREDIT.

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An alternative to companies that charge money to report your rent and utilities, you can use Experian Boost for free. Experian Boost is provided by one of the big 3 credit bureaus, Experian. However, Experian Boost only affects your credit report for Experian (and any derivative credit scores based on it).

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Practice good credit habits

 

Building a good credit score takes time and a history of on-time payments. If you cannot pay your balance in full, try to at least pay the minimum amount due to avoid a ding to your credit score. To learn more about boosting your credit score, click here.

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In order to establish a FICO score, you must have a minimum of one credit account for 6 months or more and a minimum of just one creditor that reports your activity to the credit bureaus. A VantageScore, which is similar to FICO, might require less time to develop your score.