Build Credit With No Credit History in 6 Simple Steps

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It takes money to make money. But it also takes credit to build credit, which can be frustrating if you don’t already have a health credit history.

Most financial milestones, from getting a credit card to buying a house, require credit. If you have a thin credit file you’re more likely to be turned down or face higher interest rates.

Below, CNBC Select reviews how you can build credit if you don’t have a credit history.

Secured credit cards are typically easier to qualify for than traditional cards if your credit history is poor or non-existent. And, as long as you’re responsible, they can help you establish good credit.

Just like an unsecured card, you receive a credit limit and can incur interest fees — and some secured cards even offer rewards.

The main difference is you have to make a security deposit. These deposits typically start at $200, though some can be far lower. In the beginning, your security deposit is equal to your credit limit — so if your deposit is $300, you have a $300 credit limit. After a period of on-time payments, a card issuer may review your account to raise your credit limit or even transfer you to an unsecured card and return your deposit.

The Discover it® Secured Credit Card is one of the top secured cards on the market, earning cardholders 2% cash back at gas stations and restaurants (up to $1,000 combined each quarter,) and 1% back on all other purchases. There’s no annual fee and, as a welcome bonus, Discover will match all the cash back you’ve earned at the end of your first year.

One of the fastest ways to build credit is by becoming an authorized user on someone else’s card, like a family member or close friend. You can piggyback off the primary cardholder’s credit and establish your credit history. If you fail to make payments, however, it’s the primary cardholder who is held liable — so make sure they understand the responsibility involved. Have a clear plan for paying for any purchases, so you don’t risk wracking up debt on someone else’s card.

While you have to be 18 to open a credit card account, there’s no legal age requirement to be an authorized user.

Some carriers charge more than $75 a year for an authorized user but the Blue Cash Preferred® Card from American Express has no fee. And if you’re a parent who wants to add your teen to your card so they can charge essentials and build credit, Blue Cash Preferred offers 6% cash back at U.S. supermarkets (up to $6,000 per year in purchases, then 1%), 3% at gas stations and rideshare services and 1% back on other purchases.

If you want to build credit without a credit card, you can get on-time payments to utility companies, cell phone and streaming service bills linked to your Experian credit report with *Experian Boost.™ These types of accounts aren’t normally sent to credit reporting agencies, and, when you sign up for this free service, you’ll also get an updated FICO score and a copy of your Experian credit report.

Among users who saw a score change, Experian said FICO scores rose by an average of 13 points.

Payment history represents 35% of your FICO credit score and a credit-builder loan essentially shows that you can make consistent, on-time payments. Instead of a borrower receiving funds and then making payments, your lender deposits the funds (usually between $300 and $1,000) into a savings account or CD, which you can only access once you’ve paid the loan in full.

You can open a credit builder loan from Self with monthly payments as low as $25. There is a $9 administrative fee and you do pay interest on the loan, though Self says its APRs do not exceed 16%. While you’re making payments you have access to free credit monitoring and your Experian VantageScore.

As with any other loan, late or missing payments will hurt your credit score, so only take out a credit-builder loan if you’re confident you can make timely payments.

Your credit utilization rate is the percentage of you’re total available credit that you’re using. For example, if your total available credit on all your cards is $10,000 and your total balance is $2,000, your credit utilization rate is 20%. Most experts recommend keeping your credit utilization rate below 30%, and consumers with excellent credit scores have a credit utilization below 10%.

S0, if you’ve recently opened your first credit card, don’t spend up to your limit.

If you want to lower your ratio, you can request a credit limit increase or open multiple cards. Just be sure to leave a healthy amount of credit untapped.

You don’t need to rack up thousands of dollars on your credit card to start building your credit history. Credit bureaus look most favorably on on-time and early payments, even if they’re for relatively small amounts.

If you’re building credit from scratch and are on a tight budget, this could be an effective approach to get some momentum on your card.

Most banks and credit card companies offer their customers a free credit report at least once a year. While your credit report doesn’t include your credit score, it will give you a good view of your overall financial picture (and point out any errors).

Some card issuers make VantageScore credit scores from Transunion available to individuals who don’t have accounts, including American Express® MyCredit Guide, CreditWise from Capital One and Chase Credit Journey.

Your FICO score is more valuable, though, since it’s used in 90% of lending decisions. You can get your FICO score from Experian for free or from FICO itself by signing up on the MyFICO.com website.

If you have no credit history, consider the following approaches to building credit:

• Apply for a secured credit card, typically the easiest type of credit card to qualify for
• Become an authorized user on a family member’s or friend’s card
• Use a tool like *Experian Boost™ to get credit for paying some monthly bills on time
• Consider taking out a credit builder loan, typically the easiest type of loan to qualify for
• When you do open your first credit card, keep your credit utilization under 30%
• Pay off small purchases on your credit card quickly

It can seem daunting at first to start building credit with no credit history, but it can be done with a few simple steps. Consider establishing credit with one of the best credit cards for building credit.

At CNBC Select, our mission is to provide our readers with high-quality service journalism and comprehensive consumer advice so they can make informed decisions with their money. Every personal finance article is based on rigorous reporting by our team of expert writers and editors with extensive knowledge of personal finance products. While CNBC Select earns a commission from affiliate partners on many offers and links, we create all our content without input from our commercial team or any outside third parties, and we pride ourselves on our journalistic standards and ethics.

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For rates and fees of the Discover it® Secured Credit Card, click here.

For rates and fees of the Blue Cash Preferred® Card from American Express, click here.

*Results will vary. Not all payments are boost-eligible.  Some users may not receive an improved score or approval odds. Not all lenders use Experian credit files, and not all lenders use scores impacted by Experian Boost.