5 Steps to Build a Credit Score From Scratch


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You're just starting out and you've never borrowed money before. Here's how you can establish a great credit history.

Some experts will tell you that having no credit is worse than having bad credit, and there might be some truth to that.

When I was first starting out on my own, I wanted my own cellphone plan. So I headed to the store and was turned down flat because I didn’t have a credit score.

The rep told me, “Buy a stereo at a pawn store to build up some credit and come back.” I didn’t do that (and you shouldn’t either) but I did build my credit. A few months later I had a cellphone, and today I have excellent credit scores.

If you’re looking to build your credit from scratch, take these steps:

1. Start small

In order to have a credit score, you’ll have to get and use credit. Start off small by applying for a low-limit credit card or store card. Once you’re approved and activate the card, your credit limit and your monthly charges will appear on your credit history with probably at least one of the big three credit bureaus — Equifax, Experian and TransUnion.

Finding a credit card can seem overwhelming, but we offer a credit card search tool. You can also try your bank. I got my first credit card from my credit union.

2. Try a secured credit card

If you’re having trouble getting approved for a traditional credit card, try a secured card. You’ll have to put down a deposit, but these cards have easier approval qualifications.

However, make sure you read the fine print. Some secured credit cards carry high interest and have large annual fees. Look for a card with a lower interest rate (better yet, pay the balance off in full each month) and the option to “graduate” to a traditional card, meaning you can qualify for a traditional card in a year or so if you manage the secured card responsibly. Also, be sure the card company reports your payment history to the credit bureaus.

3. Leverage what you already have

In my case, I had moved out on my own and had a few bills I paid every month. To bulk up my credit history, I called my utility company and cable provider and asked them to report my monthly payments to the credit bureaus. To my surprise, they agreed. They only reported my good behavior once, but it gave my score a small boost.

Take a look at your bills. If you make monthly payments, you might be able to get those reported to the credit bureaus. But you’ll have to ask. Generally, wireless providers, utility companies and cable companies don’t report payments to the credit bureaus automatically.

4. Create an action plan

To have a great score, you’ll need a history of timely payments and a mix of credit, but you shouldn’t try to take it all on at once. Instead, create an action plan to build your score over time.

For example, my first credit card had a $300 limit. I planned to charge small amounts on the card — no more than 30 percent of my credit limit — and pay the bill on time each month for six months before checking my credit score. After six months, my score had increased, so I applied for a retail store card.

I kept using those two cards sparingly and responsibly, and after a year I checked my credit score again. Since I had a mix of credit and a good payment history, my score had improved enough for me to apply for an auto loan, which gave my credit history a big boost.

5. Be responsible

The most important step is to be responsible. Because you don’t have a long credit history, small mistakes can have a big impact. Follow these rules:

  • Don’t send in a dozen credit card applications hoping to get approved. Applying for too much credit lowers your credit score.
  • Don’t take on more credit than you can manage. Otherwise, you might be tempted to overspend and end up in debt.
  • Pay your credit card bills off in full each month. That’s not so much to help your credit score, but to save you from paying interest.
  • Never max out your card. That can lower your score. Restrict your spending to no more than 30 percent of your credit limit.
  • Always pay your bills on time.

Stacy Johnson

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