How to Build Credit From Scratch: The Complete Guide for Beginners

Approximately 26 million Americans are "credit invisible," meaning they have no credit file at all with any of the three major bureaus. Another 19 million have credit files that are too thin or too stale to produce a score. If you are among them, whether you are an 18-year-old opening your first bank account, a recent immigrant establishing financial roots in the United States, or someone who has always operated on a cash-only basis, building credit from scratch is one of the single most important financial steps you can take.

A strong credit score affects far more than credit card approvals. It determines the interest rate on your mortgage, whether a landlord approves your rental application, how much you pay for car insurance in many states, and even whether certain employers extend a job offer. According to FICO data, borrowers with scores above 760 receive mortgage rates approximately 1.5 percentage points lower than those with scores below 660, which translates to tens of thousands of dollars in savings over a 30-year loan. This guide walks you through every proven method to build credit from nothing, with real products, real numbers, and a realistic timeline.

Why Building Credit Matters

Your credit score is a three-digit number, typically ranging from 300 to 850, that summarizes your creditworthiness based on your borrowing history. When you have no credit history at all, lenders, landlords, and insurers cannot assess your financial reliability. This creates a frustrating catch-22: you need credit to get credit.

Here is how a good credit score impacts your financial life in concrete, dollar terms:

• Mortgage rates: A borrower with a 760+ FICO score qualifies for an average rate around 6.5% in early 2026. A borrower with a 620 score pays roughly 8.1%. On a $300,000 30-year mortgage, that 1.6% difference costs an extra $115,000 in total interest over the life of the loan.
• Auto loan rates: The average rate for borrowers with excellent credit (750+) is approximately 5.5%, while those with thin or no credit files are offered rates of 12-18% or get denied altogether. On a $25,000 car loan over 60 months, the rate difference between 5.5% and 14% amounts to roughly $6,200 in additional interest. Learn more in our guide to the credit score needed to buy a car.
• Rental applications: Most landlords require a minimum credit score of 620-650. With no credit score, you may need a cosigner or be asked to pay several months of rent upfront as a deposit.
• Car insurance premiums: In states that allow credit-based insurance scoring (the majority do), drivers with poor or no credit pay 40-70% more in premiums compared to those with excellent credit, according to a 2025 analysis by the Insurance Information Institute.
• Credit card rewards: The best rewards cards, offering 2-5% cash back and travel perks worth hundreds of dollars per year, require good to excellent credit (670+). Without a credit history, you cannot access these products.

The bottom line is that building credit is not just about borrowing money. It is about unlocking better terms across virtually every major financial transaction in your life.

No Credit vs. Bad Credit: What Is the Difference?

These two situations are often confused, but they are fundamentally different and require different strategies.

No credit means the credit bureaus (Experian, Equifax, and TransUnion) have little or no information about you. You do not have a credit score at all. This is the starting point for most young adults, recent immigrants, and cash-only consumers. From a lender's perspective, you are an unknown quantity rather than a proven risk.

Bad credit means you have a credit history that includes negative marks: late payments, collections, charge-offs, or bankruptcies. Your score exists but falls below 580, which is considered "poor" by FICO standards.

The good news about having no credit is that you are starting with a clean slate. You do not need to repair anything. You simply need to establish a positive track record. Many of the products designed for people with no credit, such as secured credit cards and credit builder loans, are specifically built to help you create that first track record from zero.

If you already have a credit score and want to improve it, our credit score hub covers strategies tailored to that situation.

Secured Credit Cards: The Best Starting Point

A secured credit card is the most widely recommended first step for building credit from scratch, and for good reason. It works almost identically to a regular credit card, but with one key difference: you provide a refundable security deposit that typically becomes your credit limit. This deposit protects the card issuer, making them willing to approve applicants with no credit history.

How Secured Cards Work

1. You apply and are approved (most secured cards have very high approval rates for applicants with no credit).
2. You send a refundable security deposit, usually $200 to $500. This deposit is not a fee; you get it back when you close the account or graduate to an unsecured card.
3. You receive a credit card with a limit equal to (or sometimes higher than) your deposit.
4. You use the card for small, regular purchases, such as groceries or a streaming subscription.
5. You pay the full balance each month before the due date. This avoids interest charges and demonstrates responsible credit behavior.
6. The card issuer reports your payment history to all three credit bureaus, building your credit file.

Best Secured Credit Cards for Building Credit in 2026

Not all secured cards are equal. Here are the top options based on fees, rewards, deposit requirements, and graduation policies:

Discover it Secured Credit Card. This is consistently the top pick for credit builders. It has no annual fee, offers 2% cash back at gas stations and restaurants (up to $1,000 in combined purchases each quarter) and 1% on everything else, and Discover matches all the cash back you earn in your first year. The minimum deposit is $200, and Discover automatically reviews your account after 7 months for upgrade to an unsecured card. Discover reports to all three bureaus.

Capital One Platinum Secured. Capital One stands out because some applicants may qualify for a credit line higher than their deposit. The minimum deposit is $49, $99, or $200 depending on creditworthiness, and the card carries no annual fee. Capital One does not offer rewards, but it provides a straightforward path to an unsecured card, typically reviewing accounts for graduation after 6 months of on-time payments. Reports to all three bureaus.

Chime Credit Builder. This is not a traditional secured card but a hybrid product linked to a Chime checking account. You move money from your Chime account to a Credit Builder secured account, and that balance becomes your spending limit. There is no annual fee, no interest charges (because you are spending money you already set aside), and no credit check required. Chime reports to all three bureaus. The minimum to get started is as low as $1, though $200 or more is recommended for meaningful credit building.

Bank of America Customized Cash Rewards Secured. This card offers 3% cash back in a category of your choice (online shopping, dining, travel, drug stores, gas, or home improvement), 2% at grocery stores and wholesale clubs, and 1% on everything else. The minimum deposit is $200 with a maximum of $4,900. No annual fee. Reports to all three bureaus and offers a clear graduation path.

Tips for Maximizing Your Secured Card

• Use only 10-30% of your limit. If your limit is $200, keep your balance below $60 at any point in the billing cycle. This demonstrates low credit utilization, which is the second most important factor in your credit score.
• Set up autopay for the full balance. This guarantees you never miss a payment and never pay interest.
• Use the card for one or two recurring expenses. A streaming subscription or phone bill charged to the card each month creates consistent, predictable activity.
• Do not close the card once you graduate. If your issuer upgrades you to an unsecured card, the account age continues to grow, which helps your credit over time.

Credit Builder Loans: Build Credit Without a Card

Credit builder loans flip the traditional loan model on its head. Instead of receiving money upfront and paying it back, the lender holds the loan amount in a locked savings account while you make monthly payments. Once you have paid off the loan in full, you receive the money (minus fees and interest). Throughout the repayment period, your on-time payments are reported to the credit bureaus.

How Credit Builder Loans Work

1. You apply and are approved. Most credit builder loans do not require a credit check or a minimum credit score.
2. The lender places the loan amount (typically $300 to $1,000) into a locked certificate of deposit or savings account.
3. You make fixed monthly payments for 6 to 24 months. These payments include a small amount of interest.
4. Each payment is reported to the credit bureaus as an installment loan payment.
5. At the end of the loan term, you receive the full loan amount (minus any interest and fees). Some lenders return a portion of the interest as well.

Best Credit Builder Loan Providers

Self (formerly Self Lender). Self is the most popular credit builder loan provider with over 1 million users. Plans range from $25/month for 24 months ($600 total) to $150/month for 12 months ($1,800 total). The administrative fee is $9, and APRs range from 15-16%. Despite the interest, the total cost of building credit through Self typically runs $50-$150 depending on the plan selected, which is far less than a single late payment or a high-interest loan resulting from poor credit. Self reports to all three bureaus.

MoneyLion. MoneyLion offers a Credit Builder Plus membership that includes a credit builder loan of up to $1,000, credit monitoring, and financial tracking tools. The membership costs $19.99/month. MoneyLion allows you to access a portion of the loan proceeds upfront (up to 50%), which is unusual among credit builder loans. Payments are reported to all three bureaus.

SeedFi (now part of Intuit Credit Karma). SeedFi integrated with Credit Karma to offer credit-building savings plans. You set aside as little as $10 per pay period, and these contributions are reported as loan payments to the bureaus. When you reach your savings goal, you receive the money. There are no fees and no interest. This makes SeedFi one of the most affordable credit-building tools available, though availability may vary based on Credit Karma's current offerings.

Credit Builder Loans vs. Secured Cards

Both tools are effective, and using them together is the optimal strategy. A secured card adds a revolving credit account to your report, while a credit builder loan adds an installment account. This credit mix, having multiple types of credit, accounts for 10% of your FICO score. Research by the Consumer Financial Protection Bureau (CFPB) found that people who combined a secured card with a credit builder loan saw an average score increase of 60 points over 12 months, compared to 40 points for those using only one product.

Authorized User Strategy

Becoming an authorized user on someone else's credit card is one of the fastest ways to build credit history, but it comes with important caveats. When a primary cardholder adds you as an authorized user, the card issuer typically reports the entire account history to your credit file. If the account has years of on-time payments and low utilization, that positive history instantly appears on your report.

How the Authorized User Strategy Works

1. A trusted person (parent, spouse, sibling, or close friend) adds you as an authorized user on one of their credit cards.
2. You receive a card with your name on it, but the primary cardholder remains legally responsible for all charges.
3. The account's history, including its age, payment record, and utilization, is reported to your credit file.
4. Your credit score benefits from the positive account data.

Which Card Issuers Report Authorized User Activity?

Not all issuers report authorized user accounts to the credit bureaus. Here are the major issuers and their reporting policies:

• American Express: Reports authorized users to all three bureaus. Account history backdated to when the AU was added.
• Chase: Reports to all three bureaus. Account history backdated to account opening date, making this one of the most beneficial for credit building.
• Capital One: Reports to all three bureaus. History backdated to when the AU was added.
• Discover: Reports to all three bureaus. History backdated to when the AU was added.
• Citi: Reports to all three bureaus. History backdated to account opening date.
• Bank of America: Reports to all three bureaus. History backdated to when the AU was added.
• U.S. Bank: Reports to all three bureaus.

Risks and Considerations

The authorized user strategy carries real risks that you need to understand:

• The primary cardholder's behavior affects you. If they start making late payments or max out the card, those negative marks appear on your credit report too. Only become an AU on the account of someone you trust completely with a proven track record of responsible credit management.
• It can damage a relationship. If you run up charges on the card and cannot pay, the primary cardholder is legally responsible. Some families establish clear ground rules, such as the authorized user not receiving a physical card or agreeing to a spending limit.
• Some scoring models discount AU accounts. Newer FICO scoring models and VantageScore may weigh authorized user accounts less heavily than accounts you opened yourself. The benefit is still real, but it is best used as a supplement to your own accounts rather than a sole strategy.
• You can be removed at any time. The primary cardholder can remove you as an authorized user, and the account will eventually be removed from your credit report.

The ideal approach is to become an authorized user on a parent's or family member's old card with a perfect payment history while simultaneously building your own independent credit through a secured card or credit builder loan.

Rent Reporting Services and Experian Boost

If you are already paying rent, utilities, or streaming subscriptions on time, you may be leaving credit-building opportunities on the table. Several services now allow you to get credit for these everyday payments.

Experian Boost

Experian Boost is a free service from Experian that allows you to add utility payments (electricity, gas, water), phone bills, streaming services (Netflix, Hulu, HBO Max, Disney+), and even rent payments to your Experian credit file. You connect your bank account, Experian verifies your payment history, and positive payments are added to your report.

Key details about Experian Boost:

• Cost: Completely free.
• Average score increase: Experian reports an average boost of 13 points, though results vary widely. People with thin credit files tend to see the largest gains.
• Limitation: Only affects your Experian score. Your Equifax and TransUnion scores remain unchanged. Lenders who pull only your Equifax or TransUnion reports will not see the boosted score.
• How fast it works: The boost is typically reflected within minutes of connecting your accounts.

RentTrack

RentTrack reports your rent payments to all three credit bureaus, not just Experian. This is a significant advantage over Experian Boost. RentTrack works by either integrating with your landlord's property management system or allowing you to pay rent through their platform. The cost is typically $2-$5 per month for the renter, though some landlords absorb the cost. RentTrack can also report up to 24 months of past rent payments, which can provide an immediate boost to a thin file.

Rental Kharma

Rental Kharma reports rent payments to TransUnion and, in some cases, Equifax. The setup fee is $25, with a monthly fee of $8.95. They can report up to 24 months of past rental payments. Rental Kharma works regardless of whether your landlord participates, as they verify payments through bank statements or canceled checks.

How Effective Are Rent Reporting Services?

A 2024 study by the Federal Reserve Bank of Philadelphia found that adding rent payment data to credit reports increased the percentage of "credit invisible" renters who could generate a score by 27%. Among those who did generate a score, the average was 630, which is above the subprime threshold. Rent reporting is most effective for people who have very thin or no credit files. For those with established credit histories, the impact is more modest, typically 10-25 points.

The most effective approach is to layer rent reporting on top of a secured card and credit builder loan. This creates three positive tradelines reporting simultaneously, which accelerates credit building substantially.

Understanding the 5 Credit Score Factors

To build credit effectively, you need to understand what drives your score. FICO scores, used in 90% of lending decisions, are calculated from five weighted factors:

1. Payment History (35% of your score)

This is the single most important factor. Every on-time payment builds your score. Every late payment (30+ days past due) damages it significantly. A single 30-day late payment can drop a good score by 60-110 points. For someone building credit from scratch, the rule is simple: never miss a payment. Set up autopay on every credit account you open.

2. Credit Utilization (30% of your score)

Credit utilization is the percentage of your available credit that you are currently using. It applies only to revolving credit (credit cards), not installment loans. If you have a secured card with a $500 limit and a $150 balance, your utilization is 30%. FICO scoring rewards lower utilization. The optimal range is 1-10%. Keeping utilization below 30% is considered acceptable. Above 30% begins to hurt your score, and above 50% causes significant damage.

A common misconception is that you need to carry a balance to build credit. This is false. You can use your card, let the statement close with a small balance (which gets reported to the bureaus), and then pay the full statement balance by the due date. You pay zero interest and still show activity.

3. Length of Credit History (15% of your score)

This factor considers the age of your oldest account, the age of your newest account, and the average age of all accounts. When you are building from scratch, this factor works against you because all your accounts are new. The only solution is time. This is why it is important to open your first account as soon as possible and to never close your oldest account. It is also why the authorized user strategy can help: being added to someone's 10-year-old card instantly gives you account history.

4. Credit Mix (10% of your score)

FICO rewards having a mix of credit types, both revolving accounts (credit cards) and installment accounts (loans with fixed monthly payments). This is where combining a secured credit card with a credit builder loan provides an advantage over using either product alone. You do not need many accounts. One revolving account and one installment account are enough to satisfy the credit mix factor.

5. New Credit Inquiries (10% of your score)

Each time you apply for credit, the lender pulls your credit report, which creates a "hard inquiry." Each hard inquiry can reduce your score by 2-5 points and remains on your report for two years (though its scoring impact fades after about 12 months). When building credit from scratch, apply for only one or two products at a time. Do not submit multiple credit card applications in a short period.

Credit-Building Methods Compared

This comparison table summarizes the main credit-building strategies to help you choose the right approach for your situation:

Score ranges are estimates based on consistent on-time payments, low utilization, and no negative marks. Individual results depend on the complete picture of your credit behavior.

Realistic Credit-Building Timeline

One of the most common questions is "how long does it take to build credit?" Here is a realistic month-by-month timeline based on opening a secured credit card and a credit builder loan simultaneously:

Months 1-3: Foundation Phase

• Open a secured credit card with a $300-$500 deposit.
• Start a credit builder loan ($25-$50/month plan).
• Consider enrolling in Experian Boost and a rent reporting service.
• Use your secured card for one or two small purchases each month. Pay the full balance by the due date.
• At this stage, you may not yet have a credit score. FICO requires at least one account that has been open for six months, though VantageScore can generate a score within one to two months.

Months 3-6: First Score Generated

• Your VantageScore may appear as early as month 2. Your FICO score typically appears by month 6.
• Initial scores generally fall in the 580-670 range.
• Continue making all payments on time and keeping utilization below 30%.
• Do not apply for any new credit during this phase.

Months 6-12: Growth Phase

• With 6+ months of perfect payment history across multiple accounts, your score should be in the 650-700 range.
• Your secured card issuer may offer to graduate you to an unsecured card. Accept this upgrade, as it returns your deposit while maintaining your account history.
• You may begin to qualify for entry-level unsecured credit cards with modest limits.
• Your credit builder loan may be reaching maturity. You receive the savings and gain a completed installment loan on your record.

Months 12-24: Establishment Phase

• With 12-24 months of consistent positive history, your score should be in the 700-740 range.
• You now qualify for most mainstream credit products: unsecured credit cards, auto loans at competitive rates, and rental applications without a cosigner.
• Consider opening one more credit card (perhaps a rewards card) to increase your total available credit and improve your utilization ratio. Space new applications at least 6 months apart.
• Your credit profile is now established. From here, continued responsible management will push your score into the 750+ "excellent" range over the next 2-5 years.

Common Mistakes That Hurt Your Credit

Building credit from scratch requires avoiding pitfalls that are especially damaging for thin credit files. Here are the most common and costly mistakes:

Applying for Too Many Cards at Once

When you have no credit, it is tempting to apply for several cards to "see what sticks." Each application creates a hard inquiry, and multiple inquiries in a short period signal desperation to lenders. Furthermore, multiple new accounts simultaneously lower your average account age. Limit yourself to one, or at most two, applications when starting out. Wait at least 6 months between applications.

Carrying a Balance to "Build Credit"

This is one of the most persistent myths in personal finance. You do not need to carry a balance and pay interest to build credit. Credit bureaus record whether you made your payment on time, not whether you paid interest. The optimal strategy is to use your card, let the statement generate (so a balance is reported), and then pay the full statement balance by the due date. You build credit and pay zero interest.

Closing Your Oldest Account

When you graduate from a secured card to an unsecured card, your issuer typically converts the same account, preserving its age. But if you decide to close a card, never close your oldest account. The age of your oldest account is a key factor in the "length of credit history" component of your score. Closing it immediately shortens your credit history.

Maxing Out Your Secured Card

If you have a $200 secured card and routinely carry a $180 balance, your utilization is 90%. This actively damages your score, even if you pay the balance in full each month, because the balance reported to the bureaus is typically the statement balance, not what you owe after payment. To control this, either make payments before the statement closing date or keep charges well below 30% of your limit.

Ignoring Your Credit Reports

Errors on credit reports are surprisingly common. The Federal Trade Commission found that 1 in 4 consumers had errors on their reports that could affect their scores. When you are building credit, even a small error can have an outsized impact. Pull your free reports at AnnualCreditReport.com at least twice a year and dispute any inaccuracies immediately.

Using High-Interest "Credit Repair" Services

Companies that charge hundreds of dollars to "fix" your credit or "guarantee" a certain score are almost always scams. When you have no credit (as opposed to bad credit), there is nothing to repair. The strategies in this guide, secured cards, credit builder loans, authorized user status, and rent reporting, are all you need, and most are free or very low cost.

Step-by-Step Action Plan

Here is the exact sequence of actions to build credit from scratch as efficiently as possible:

1. Week 1: Open a secured credit card. The Discover it Secured is the top choice for most people because of its cash back rewards, no annual fee, and automatic graduation review at 7 months. Deposit $200-$500.
2. Week 1: Enroll in Experian Boost. Connect your bank account and add utility payments, phone bills, and streaming subscriptions. This is free and may provide an immediate boost to your Experian score.
3. Week 2: Start a credit builder loan. Self offers plans starting at $25/month. Choose a plan you can comfortably afford without straining your budget.
4. Week 2: Sign up for a rent reporting service. If you pay rent, use RentTrack ($2-$5/month) to report payments to all three bureaus.
5. Week 3: Ask a family member about authorized user status. If a parent or sibling has a credit card with a long, positive payment history, ask to be added as an authorized user. Clarify that you do not need a physical card; you just need the account reported on your file.
6. Monthly: Use your secured card for one or two recurring purchases. Set up autopay for the full statement balance. Keep utilization below 30%.
7. Monthly: Make your credit builder loan payment on time. Set up autopay to ensure you never miss a payment.
8. Every 4 months: Check your credit reports. Use AnnualCreditReport.com (free) or Credit Karma (free VantageScore monitoring) to track your progress and check for errors.
9. Month 6-7: Accept graduation to an unsecured card. When your secured card issuer offers to upgrade your account, accept it and receive your deposit back.
10. Month 12+: Consider opening one rewards credit card. With a 670+ score, you may qualify for cards like the Chase Freedom Flex or Capital One Quicksilver that earn meaningful rewards.

For broader strategies on managing your money and building wealth, visit our personal finance hub.

Frequently Asked Questions About Building Credit From Scratch

How long does it take to build credit from scratch?

Most people can generate their first credit score within 1-6 months of opening a credit account. With responsible use, you can typically reach a 650+ score in 6-12 months and a 700+ score in 12-24 months. The key factors are making every payment on time and keeping credit utilization below 30%.

What is the best way to build credit with no credit history?

The most effective first step for most people is a secured credit card. You place a refundable deposit (typically $200-$500) that becomes your credit limit, then use the card for small purchases and pay the full balance each month. Secured cards from Discover, Capital One, and Chime all report to all three credit bureaus and require no existing credit history.

Can I build credit without a credit card?

Yes. Credit builder loans from companies like Self, MoneyLion, and SeedFi allow you to build credit without a traditional credit card. These loans hold the borrowed amount in a savings account while you make monthly payments, and those payments are reported to credit bureaus. You can also use rent reporting services like Experian Boost or RentTrack to get credit for payments you are already making.

Does becoming an authorized user build credit?

Yes, becoming an authorized user on someone else's credit card can help build your credit, as long as the card issuer reports authorized user activity to the credit bureaus. Major issuers like American Express, Chase, Capital One, and Discover all report authorized user accounts. The primary cardholder's payment history and credit utilization on that card will appear on your credit report.

What credit score do you start with when you have no credit history?

You do not start with a zero credit score. Instead, you have no score at all — credit bureaus simply do not have enough data to generate one. Once you open your first credit account and it has been active for at least one to six months, you will receive your initial score, which typically falls in the 580-670 range depending on how you have managed the account.

Building credit from scratch is a marathon, not a sprint, but the strategies in this guide give you a clear, proven path from invisible to excellent. Once your score reaches the 700+ range, you unlock dramatically better terms on mortgages, auto loans, and credit cards, potentially saving you tens of thousands of dollars over your lifetime. Explore our credit score resource center for in-depth guides on every aspect of credit management, or check what credit score you need to buy a car once your score starts climbing.