myFICO: How to Build Credit

SAN JOSE, Calif.–(BUSINESS WIRE)–Whether you’re looking to get a mortgage, take out a loan, or rent a new apartment, you need to know how essential it is to have a good credit score. For many people, building credit starts with timely payment of a student loan or credit card. However, to qualify for a credit card or loan, you often need to have a good credit history. This creates a difficult “chicken and egg” scenario where you need credit to build credit.

In this article, myFICO gives you the information you need to build your credit from scratch:

First, we’ll look at what goes into your credit and your FICO® score. Next, we’ll give you some ways to build credit from scratch.

For more information on loans and credit, visit myFICO’s credit resources:

What factors affect your credit rating?

The industry standard credit score is the FICO® score, used by 90% of major lenders to make decisions about credit approvals, terms and interest rates. Although the criteria for other credit scores vary, your FICO scores are calculated based on five categories of information gathered entirely from your credit report. Each category represents a percentage of your FICO score. These categories include:

  • Payment history (35%) How you paid your bills in the past

  • Amounts owed (30%) How much of your available credit you are using

  • Length of credit history (15%) How long your credit accounts have been established

  • Composition of credit (10%) Types of credit accounts used or reported, including credit cards, retail accounts, installment loans and mortgages

  • New credit (10%) How many new accounts have you recently opened and whether you have sought to assess a single loan or applied for multiple new lines of credit

How long does it take to establish a credit history?

Now that we have a better understanding of what credit is, it’s important to start thinking about how to build a credit history.

In order to receive a valid FICO® score, the credit report must have:

  • At least one account opened for six months or more

  • At least one account that has been reported to the credit bureau in the last six months

  • No indication of death on credit report (Please note that if you share an account with another person, it may affect you if the other account holder is declared deceased)

The minimum scoring criteria can be met by a single account or by multiple accounts on a credit file. So, if you are approved for new credit that is actively used and reported to the credit bureau, you should meet the minimum scoring criteria in six months.

Building credit from scratch

When you first make the decision to start building credit from scratch, it can seem paradoxically difficult to get a credit card or loan without having a credit history. However, there are several options that could help you start your credit-building journey.

Consider a credit card

Credit cards make it easy and convenient to pay for things like goods, services, bills and more. Unlike a debit card, which takes funds directly from your bank account, credit cards essentially act as an ongoing loan from the credit card issuer. When you open a new credit card account, the card issuer sets a credit limit that you can use. Available credit is the amount of money you have left on the card when you load it. Then, before the due date, you simply reimburse the credit card company for what you spent.

Open your first card account with a bank or credit union

If you have an existing relationship with a bank or credit union, they probably already like your business and that relationship could help you qualify for a credit card. Other credit card companies offer cards specifically designed for new credit builders.

Start as an authorized user

Becoming an authorized user on a family member’s credit card account can be a way to start building credit from scratch. Indeed, it can allow you to enjoy the benefits of their good credit history, even if you never use their credit card. The process for this is relatively simple; the primary account holder only needs to add your name to their credit card account.

However, this method does not have such a big impact on your own credit score, nor does it offer all the privileges of being a primary account holder. To start building your own credit score, you’ll probably need your own credit card account. For many people, their first credit card is a secured card.

Consider a secured credit card

Secured credit cards are a type of credit card that requires you to put down a security deposit to open an account. Typically, this amount then becomes your credit limit, protecting the card issuer if you are unable to make your payments. However, you cannot use this money to pay your balance or make other purchases. Secured cards are often used by new card owners or those looking for credit repair because they are generally easier to obtain and are usually reported to credit bureaus as an unsecured credit card.

Unsecured cards, on the other hand, are what you might think of as a traditional “credit card”. This basically means you don’t have to pay a security deposit to be approved, however, qualification can be exclusive to a specific range of credit scores.

Loans, rents and payments from service providers

There are other options for establishing a good credit history without using credit cards.

Student loans: For many people, the first loans they receive are for college or university tuition. By repaying these installment loans at regular intervals over a pre-determined period, you can start building a credit history. Student loans are also added to your credit mix, which can improve your credit score.

Co-signed loans: If you’re having trouble getting loan approval, you can ask a loved one to co-sign. This means both parties share equal responsibility for the debt and the loan shows up on both credit reports. As long as you don’t miss any payments, this can be a great way to build up a good credit history.

Service providers: Utilities, cable, cell service, and internet all require you to sign contracts knowing that you will pay for their services each month. Many modern credit scoring systems take these payments into account when generating your credit score.

Rent payments: Sometimes landlords report your rental history to the credit bureau. Although this is not common practice, it may be worth asking your property managers if they do this or if they can get started.

How to get a good credit rating

Achieving a higher credit rating takes time, patience and financial responsibility. While you can’t get a perfect 850 overnight, you can focus on the behaviors and practices that creditors look for in a borrower. We hope this will form a habit that will help you maintain good credit over the long term. Here are some educational tips that can help you start building your credit now and in the future:

Paying your bills on time is the most important rule of thumb when it comes to building good credit. Your payment history accounts for 35% of your total credit score, so it’s best to avoid making a late payment. A few other considerations:

  • Spending well below your credit limit is considered best practice, as creditors generally view high spending as risky behavior.

  • Read the terms and conditions of each credit card before applying. Not only do you want to make sure it’s the right card for you, but you also want to know if you’ll qualify. If you apply and are turned down, the investigation may lower your credit score by a few points.

  • Maintain a healthy mix of credit cards and loans to show creditors that you have experience handling different types of debt. However, remember not to open too many lines of credit in a short time, as this can be considered risky behavior.

  • Finally, try not to close a credit account; only apply the credit cards you intend to keep and create a history with that account.

The importance of monitoring your credit score

Credit scores are an essential part of your overall financial well-being. Creditors use these scores to determine the approval of new lines of credit, interest rates and fees and even utility deposits, so a bad credit score can have lasting financial repercussions in many areas of your life. Knowing your credit score and credit history can help you better understand your current credit standing before applying for a new account. This way you know what you need to work on before applying for a loan or card.

How to check your credit report and credit score

Under the Fair Credit Reporting Act, each of the three major credit bureaus must provide consumers with a free credit report at least once a year. However, free credit reports do not include your credit score. This means you must go through an approved FICO® Score retailer, such as myFICO or Experian, to check your credit score.

About myFICO

myFICO makes it easy to understand your credit with FICO® Scores, credit reports and alerts from all 3 bureaus. myFICO is the consumer division of FICO – get your FICO scores from the people who do FICO scores. For more information, visit

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