Building credit from the ground up can be challenging—lenders want to see credit history, but you can’t build history without credit.
Yet, having good credit is essential for significant life milestones like renting an apartment, buying a car, or even landing specific jobs.
The good news is that there are innovative, strategic ways to establish credit without taking on unnecessary risks.
This guide explores practical ways to lay the foundation for a strong credit profile while answering the question of how do you build credit effectively.
Start with a Secured Credit Card
If you’re new to credit, a secured credit card is one of the safest ways to get started. Unlike a traditional credit card, it requires a refundable security deposit, which acts as your credit limit. This minimizes the lender’s risk and makes it easier for you to qualify.
You demonstrate responsible credit use by using the card for small purchases and paying the balance in full each month.
Over time, on-time payments will help you transition to an unsecured card with better terms and higher limits, setting the stage for long-term credit success.
Become an Authorized User on a Trusted Account
Another quick way to start building credit is to become an authorized user on a family member’s or close friend’s credit card. This allows their positive credit habits to be reflected on your credit report, giving you a head start.
Ensure the primary cardholder has a history of on-time payments and a low balance relative to their credit limit.
If they manage their account well, you’ll benefit from their responsible credit behavior without being financially liable for the charges.
Use a Credit-Builder Loan to Establish History
Credit-builder loans are specifically designed to help individuals build or repair their credit. Unlike traditional loans, you don’t receive the money upfront. Instead, the lender holds the funds in a savings account while you make fixed monthly payments.
Once the loan is paid off, you gain access to the money and a boosted credit score. Since the payments are reported to the credit bureaus, they help establish a strong payment history, one of the most significant factors in your credit score.
Pay Bills on Time and Consider Alternative Credit Reporting
Even if you don’t have a credit card or loan, you likely pay rent, utilities, or streaming services bills. Some services allow you to report these payments to the credit bureaus, helping you build a positive payment history.
Some rent-reporting services let you add eligible bills to your credit report. While these alternative data sources won’t replace traditional credit accounts, they can supplement your efforts and give you a slight credit score lift.
Keep Your Credit Utilization Low and Apply Wisely
One of the biggest credit score killers is maxing out your available credit. A good rule of thumb is to keep your credit utilization below 30%—meaning if your credit limit is $1,000, aim to use no more than $300 at any given time.
Additionally, avoid applying for multiple credit accounts within a short period. Each application results in a hard inquiry, which can temporarily lower your score. Instead, space out applications and focus on growing your credit responsibly over time.
Establishing credit from scratch may take patience, but it’s entirely possible. Whether you start with a secured card, become an authorized user, or use a credit-builder loan, small steps can lead to significant financial benefits.
Prioritizing on-time payments and responsible credit usage will help you gain lenders’ trust. Intuit understands the importance of building and managing credit wisely, offering tools and insights to help individuals make informed financial decisions.
