How to Build Credit From Scratch: A 12-Month Plan

To build credit from scratch, open one account that reports to all three credit bureaus, usually a secured card or a credit builder loan, and pay it on time every month. FICO needs an account at least six months old that was reported in the past six months, so your first score takes about six months. The rest is time and consistency. This guide compares every common starting tool and lays out a month-by-month plan.

How long does it take to build credit from nothing?

It takes about six months to get a first FICO Score, and longer to earn a good one. myFICO lists three minimum requirements for a valid FICO Score: at least one account open for six months or more, at least one account reported to a credit bureau within the past six months, and no indication on the report that you are deceased. A single account can meet the first two requirements.

After that first score appears, time keeps working for you. Length of credit history makes up 15 percent of a FICO Score, and payment history makes up 35 percent, so a year of on-time payments on a young account is worth more than any shortcut. Expect your score to rise gradually as the account ages, as long as you keep the balance low and never pay late.

What are the ways to build credit with no credit history?

The CFPB points to three main starting tools: secured credit cards, credit builder loans and retail cards with low limits. Becoming an authorized user on someone else's card is a fourth option if you have a family member with good habits. The table compares them.

Should you start with a secured card or a credit builder loan?

Start with a secured card if you want a card for everyday spending, and choose a credit builder loan if you would rather avoid a card or want the loan to double as forced savings. With a credit builder loan, the CFPB explains, you make payments before you get the money, and at the end of the term you receive the amount you paid in. The CFPB's own research found these loans worked better for people who started without existing debt.

A secured card is more flexible. Here are three cards from our database that are built for people starting out, with figures from our product reviews:

• Capital One Platinum Secured: no annual fee, a deposit that can be lower than your credit line, and a 28.99% variable APR. It earns no rewards, and Capital One offers a route to an unsecured card.
• Discover it Secured: no annual fee, reports to all three bureaus, and earns 5% cash back in rotating quarterly categories (activation and a quarterly cap apply) and 1% elsewhere, with Discover matching all cash back earned at the end of the first year. The APR is 28.24% variable.
• Discover it Student Cash Back: an unsecured card for students with limited credit, no annual fee, the same rotating 5% categories and a first-year Cashback Match, with an 18.24% to 27.24% variable APR.

Those APRs only matter if you carry a balance, which you should not do. Our guide to the best secured credit cards covers more options, and students can compare student credit cards.

Holding one of each over time also helps your credit mix, which is 10 percent of a FICO Score, because a card is revolving credit and a credit builder loan is an installment loan. Do not open both at once, though. Start with one, let it age, then add the second if it fits your budget.

Can you build credit as an authorized user?

You can, but only if the card issuer reports authorized users to the bureaus, and only if the primary cardholder manages the card well. Experian notes that not every issuer reports authorized user accounts, so ask the issuer before you are added. When it is reported, the account's history and limit can help you get a thin file started.

The risk is that the account's balances show on your report too. Experian says a maxed-out card could damage an authorized user's credit, even though it does not include the primary cardholder's missed payments on an authorized user's report. Choose someone who pays in full and keeps balances low, and treat authorized user status as a supplement to an account in your own name, not a replacement for one.

What if you are under 21?

If you are under 21, federal rules require a card issuer to see that you have your own ability to make the payments, or that someone 21 or older will be jointly liable with you. Income from a job, or assets you can draw on, can meet that test. If you do not have either, a credit builder loan or authorized user status on a parent's card are the usual starting points until you do.

What is a 12-month plan to build credit from scratch?

Open one account, use it lightly, pay it automatically, and let a year pass before you apply for anything else. Here is the sequence.

1. Month 0: Check your credit reports. Pull your reports free at AnnualCreditReport.com, which now offers free weekly reports from all three bureaus. Confirm you truly have no file, and that nothing belonging to someone else appears.
2. Month 0: Open one starter account. A secured card or a credit builder loan. Ask whether it reports to Experian, Equifax and TransUnion.
3. Month 1: Put one small recurring bill on the card. A phone bill or a streaming service works. Then set autopay for the full statement balance, so the card is used every month and paid every month.
4. Every month: Keep the reported balance low. On a $500 limit, a statement balance under $50 keeps your utilization under 10 percent.
5. Month 6: Look for your first score. Many card issuers show a free score in their apps, and the six-month mark is when FICO's minimum requirements can first be met.
6. Months 6 to 12: Do not apply for new credit. New credit makes up 10 percent of a FICO Score, and several applications close together can hurt a young file.
7. Month 12: Review your options. Ask your secured card issuer whether you can move to an unsecured card and get your deposit back, or apply for a starter unsecured card that matches your score. Our guide to credit cards for fair credit covers the next step up.

What does not build credit?

Anything that does not involve borrowing, or that the lender does not report, will not build your credit history. The CFPB lists these as not helping:

• Debit cards and cash, because you are not borrowing.
• Prepaid cards, because you can only spend money you loaded.
• Payday loans, because the payments are generally not reported to the credit bureaus.
• "Buy here, pay here" car loans, because these dealers often report only negative information.

Rent and phone bills are a gray area. The CFPB notes that the bureaus do not usually receive these payments, although they could record on-time history if they were reported. Some landlords and services offer rent reporting; ask what it costs and which bureaus receive the data before you sign up.

What mistakes slow down building credit?

Missing a payment is the biggest one, because payment history is the largest single part of your score.

• Paying late, even once. A payment 30 or more days late can stay on your report for seven years.
• Carrying a balance to "show activity." Your statement balance is reported whether you pay it in full or not, so interest buys you nothing. See how to build credit with a credit card.
• Using most of a small limit. $400 on a $500 limit is 80 percent utilization, even if you pay it off.
• Applying for several cards at once. Each application can add a hard inquiry, and a denial does nothing for your file.
• Closing your first card. It is your oldest account. If it has no annual fee, keep it open and use it occasionally. For what lenders see as your file grows, read understanding your credit score.