Starting from nothing
Lenders want to see a record before they lend, and you cannot get a record without borrowing. The scoring models need at least one account that has been open and reporting for about six months before they will produce a score at all. The goal for your first year is modest: get one or two accounts reporting, use them lightly, and never miss a due date.
Four ways in
- A secured card asks for a refundable deposit, commonly $200 to $500, which becomes your credit limit, and many issuers return the deposit and convert the account to an ordinary card after six to twelve months of on-time payments.
- Becoming an authorized user on a parent's or partner's long-standing card adds that account's history to your file, which helps only if the primary cardholder pays on time and keeps balances low.
- A credit-builder loan, offered by many credit unions, holds the borrowed amount in a locked savings account while you make small monthly payments, then releases the money to you at the end.
- A student card or a store card is easier to get than a general card, though store cards carry high rates and low limits.
If you are under twenty-one, federal law requires you to show your own income or have a cosigner to open a card.
Using it so it counts
Put one small recurring charge on the card and pay the full statement balance every month by automatic payment. Keep the reported balance under thirty percent of the limit, and under ten percent is better. On a $500 limit, that means a statement of $50 or less. Carrying a balance from month to month does nothing for your score, and the interest is simply money lost.
What to expect and what to avoid
A first score usually appears after about six months, and a year of clean history is often enough to qualify for an ordinary unsecured card. Apply for new credit sparingly, because each application puts a hard inquiry on your file for two years and a cluster of them looks like distress. Keep your oldest account open even after you outgrow it, since the age of your accounts keeps working for you. Do not cosign for anyone unless you are prepared to pay the whole debt yourself, because legally that is exactly what you are promising.
Note Rent and utility payments generally do not appear on your credit report unless you enroll in a reporting service, but an unpaid bill sent to collections certainly will.
