Updated on: May 7, 2020

How to Build Credit When You Have No Credit at All

crane with a credit

Fixing a bad credit score is one thing, but what if you don’t have any credit score at all? Can you really make credit from nothing? Of course, you can!

We’re not breaking any news here when we tell you that your credit score is very important. But it’s still very important! At some point, you’re probably going to need a personal loan or a credit card or you’re going to want to sign a lease. Unless of course, you can just afford to purchase everything with giant suitcases of cash.

But if you could, you probably wouldn’t be reading this article. You’d be too busy working with top engineers in an effort to make your solid gold jet plane actually capable of flight.

Still, don’t believe credit is important? Here’s an example of why it’s so valuable, from certified financial planner and Founder and CEO of Doing Money Right, Byron Ellis:

“Have you ever noticed how companies brag about how long they’ve been around? Restaurants, banks, construction companies… they include ‘Est.’ in their logos and proudly announce the first year they opened their doors. Why?

“Because they want to give you a sense of enduring quality, and more importantly, consistency. If a business has managed to survive for decades, it implies that they have been able to keep loyal customers coming back. And they want you to become a loyal customer too!

“That’s sort of how credit works. What makes a good credit score is a long history of consistent, regular payments on debt, which reassures lenders that you will make consistent payments in the future.”

Now, fixing a bad credit score is one thing, but what if you don’t have a credit score in the first place? Can you really make credit from nothing? Of course, you can! We asked the experts and now we bring the answers to you!

Here’s how credit scores work.

Your credit score is a number between 300 and 850 that is generated using information from your credit reports, which track your history of borrowing money. You have three different credit reports, one each from the three major credit bureaus, TransUnion, Experian, and Equifax.

The higher the number, the more likely lenders will be to believe that you’ll pay back a loan you’ve taken out. It can also be used when you’re applying for a lease and, in rare cases, when you’re being considered for a job.

There are five factors that go into your credit score. In order from most to least important, those factors are payment history, amounts owed, length of credit history, credit mix, and new credit inquiries.

So how can you use your knowledge of those factors to create a good credit score out of thin air?

Pay your bills on time!

As we just told you in the previous section, payment history is the single largest factor in shaping your credit score. That’s why it’s important that, as soon as you have bills, you’re paying those bills on time, right out of the gate.

“First, pay your bills on time,” advised financial coach and author Karen Ford. “Any medical bills, utilities, rent, should all be paid on time. Although these aren’t car payments or credit cards, they can still affect any credit you may trying to build.”

Avoid overborrowing.

You need credit to have a credit history, and that means taking on debt. But not too much debt!

“The number one rule of credit is this: Only borrow what you can pay back!” warned Ellis.

“Once you’ve started to build up your credit score, lenders will take notice. Keep in mind that they want to loan you money, so they can earn interest, and if you’ve proven that you can make consistent payments, you’re a perfect candidate!

“Credit cards, mortgages, vehicle loans … you’ll be approved to borrow much, much more than you can realistically afford to pay back. The average American family carries around $135,000 in debt, $7,000 of which is revolving credit card debt. On top of that, one in 11 say that they don’t think they will ever be completely free of credit card debt. Don’t fall into the debt trap!”

“Remember that success is about balance,” he added. “Figure out how much you can afford to spend on a monthly basis—AFTER doing things like saving for retirement—and then whatever is left over can go towards debt payments.”

You’ll need to start slow.

If you don’t have any credit, you may not be able to qualify for personal installment loans with reasonable interest rates. But there is a way to take on good debt to build up your credit without having to deal with sky-high Annual Percentage Ratings (APRs), which is the full cost of a loan in a given year including fees and interest.

“Get a secured credit card,” recommended Smart Shopping Expert Trae Bodge. “Building credit is all about using credit and a secured credit card is a good way to do that. With secured cards, you start with funds you deposit, and then you pay back what you spend.”

You can also hop onto an already existing card.

“Become an authorized user,” suggested Katie Ross, Education and Development Manager at American Consumer Credit Counseling, or ACCC. “Obtain credit in your name as an authorized user on a parent/guardian’s account. This will help you build credit until you are able to qualify for credit on your own.”

However, even if you’re paying off your credit card bill in full each month, as you should, you still don’t want to charge too much on it.

“Don’t max out your cards,” Ross told us. “Maintain a good credit utilization ratio (don’t exceed 30 percent of the credit that’s available to you).”

Be careful how many accounts you open.

While you may be tempted to open as many accounts as possible to grow your credit score as soon as possible, this is not a good move!

“We’ve mentioned several great options for building your credit score up from zero, but they all have one thing in common: they take time,” Ellis explained. “If you’re impatient like I am, you might think ‘hey, if I open two or three of these accounts at once, that will build my credit twice as fast!’ Right?

“Let me tell you … definitely not! Here’s why. Every time you apply for new credit, the lender will pull your full credit report from the credit bureaus I mentioned earlier. This is called a Hard Inquiry and it’s visible to other lenders. “When lenders see multiple Hard Inquiries back-to-back, they know that you have added additional debt in a short period of time.

“And that makes them nervous! Their primary concern is getting their money back, and the more debt you add at once, the higher the likelihood that you will stop paying on at least one of those loans.

“Have you ever had a favorite local restaurant that tried to grow too fast, opened up a bunch of new locations at once, and failed because they couldn’t maintain the same quality as before Bingo! Don’t stretch yourself too thin.”

Ross echoed that advice: “Limit the number of open accounts. Apply for and open new credit card accounts only when it is truly necessary. Too many opened accounts can send a negative message to your potential lenders.”

Don’t get ahead of yourself.

You’re not suddenly going to have a great credit score overnight. And that’s OK.

“Start small,” advised Ford. “The amount you end of charging is small in comparison to you paying on time. Whether you charge a lot or a little, make the payments on time as this will build credit.”

It isn’t always easy to build up your credit, but it’ll be worth it in the long run.

Article contributors
Trae Bodge

Trae Bodge (@truetrae) is an accomplished lifestyle journalist and TV commentator who specializes in smart shopping, personal finance, beauty, toys, parenting, and retail. In addition to monthly “Best Buys” segments on CBS2 NY, Fox 5 NY and ABC/WJLA in DC, she has appeared on dozens of TV shows, including Rachael Ray, Inside Edition, CNBC and network affiliates nationwide. Trae has been named a Top Voice in Retail by LinkedIn and a top personal finance expert by GoBankingRates and FlexJobs. She is a contributing editor at Woman’s Day magazine and her writing and expert commentary have also appeared in Forbes, USNews.com, Kiplingers, Marketwatch, MSN Money, Yahoo Finance, VICE Guide to Life and numerous others.

Byron Ellis

Byron Ellis (@byronellistweet) is the Managing Director at United Capital Financial Life Management (@United_Capital) and the Founder/CEO of Doing Money Right.  He has been helping families with their Financial Life Management since 1989 and has built and grown one of the most successful firms in the entire country! Byron lives in Woodland Texas where he has a weekly financial column in The Villager and Courier, two local newspapers.

Karen Ford

Karen Ford is a Master Financial Coach, Public Speaker, Entrepreneur, and Best- Selling Author. Her #1 Amazon Best Selling Book “Money Matters” is a discovery for many.  In “Money Matters” she provides keys to demolishing debt, shares how to budget correctly, and gives principles in wealth building.

Katie Ross

Katie Ross, joined the American Consumer Credit Counseling, or ACCC, management team in 2002 and is currently responsible for organizing and implementing high-performance development initiatives designed to increase consumer financial awareness. Ms. Ross’s main focus is to conceptualize the creative strategic programming for ACCC’s client base and national base to ensure a maximum level of educational programs that support and cultivate ACCC’s organization.

Andrew Tavin
Content Manager

Andrew Tavin is a writer, comedian, and a full-time content manager for OppLoans. He graduated with a BFA in TV Writing from Tisch School of the Arts in New York City, worked as a writer for BrainPOP, and created a branded comedy video series for the National Retail Federation called “Interview Day.” He performs around the country and his writing has also appeared on Collegehumor, Funny or Die, and Sparklife.

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