Building Credit from Scratch: Tips for New Borrowers

Starting from scratch with your credit can feel overwhelming, but it’s an important step toward achieving your financial goals. Whether you’re new to borrowing or just starting your financial journey, building credit is essential for securing better loans, lower interest rates, and even getting approved for renting a home or applying for certain jobs. This guide breaks down the process into simple, actionable steps to help you build your credit responsibly.

1. Understand the Basics of Credit

Before you dive into building your credit, it’s crucial to understand what credit is and how it affects your financial future. Credit allows you to borrow money with the agreement that you’ll repay it over time. Your credit score is a number that represents how reliable you are as a borrower. Lenders, landlords, and even employers may use your credit score to gauge your financial trustworthiness.

Your credit score is typically determined by five factors:

• Payment History (35%): Whether or not you’ve made payments on time.
• Credit Utilization (30%): The percentage of your available credit you’re using.
• Length of Credit History (15%): How long you’ve had credit accounts.
• Credit Mix (10%): A combination of different types of credit accounts.
• New Credit (10%): How often you’ve opened new credit accounts.

For more details on how credit scores are calculated, check out FICO’s breakdown of credit score factors.

2. Start with a Secured Credit Card

For most people building credit from scratch, a secured credit card is one of the easiest and safest options. A secured credit card requires a deposit that serves as your credit limit. For example, if you deposit $300, you can spend up to $300 on the card.

Secured cards work like regular credit cards, and as long as you make your payments on time, your credit score will gradually improve. Be sure to choose a secured card that reports to the major credit bureaus (Equifax, TransUnion, and Experian), which is essential for building your credit.

Some great options include:

• Discover it® Secured Credit Card – No annual fee and rewards on purchases. Learn more at Discover it® Secured Credit Card.
• Capital One Secured Mastercard – Great for those new to credit or rebuilding. More details at Capital One Secured Mastercard.

3. Consider a Credit-Builder Loan

Credit-builder loans are specifically designed for individuals who want to build or improve their credit. When you take out a credit-builder loan, the lender deposits the loan amount into a savings account that you can’t access until the loan is paid off. You then make regular monthly payments toward the loan.

By making on-time payments, you demonstrate your ability to manage credit, and the lender reports your payments to the credit bureaus, helping you build a credit history.

Some reputable platforms to consider include:

• Self (formerly Self Lender) offers credit-builder loans and a secure savings plan. Learn more at Self Credit Builder Account.
• Credit unions and community banks often offer favorable credit-builder loan options. You can find a local credit union at Find a Credit Union Near You.

4. Become an Authorized User on Someone Else’s Credit Account

Another quick way to start building credit is by becoming an authorized user on a family member’s or friend’s credit account. If they have good credit and a history of timely payments, you’ll benefit from their positive credit activity, even though you’re not responsible for the debt.

Before proceeding, make sure the primary cardholder’s credit card issuer reports authorized users to the credit bureaus. If it does, the positive impact of their credit history can help improve your score.

To learn more about becoming an authorized user, read this guide on Experian’s Authorized User Program.

5. Pay Your Bills on Time

Your payment history accounts for 35% of your credit score, making it the most important factor. While credit card and loan payments are obvious, other bills, such as rent, utilities, and phone bills, may also be reported to credit bureaus. Services like Experian Boost can help you add these non-traditional payments to your credit report, boosting your score.

Being diligent about paying all bills on time is crucial, especially if you’re working toward building credit. Learn more about Experian Boost at Experian Boost.

6. Monitor Your Credit Regularly

As you start to build credit, it’s important to track your progress. Free annual credit reports from each of the three major credit bureaus—Equifax, Experian, and TransUnion—are available at AnnualCreditReport.com. You’re entitled to one free report from each bureau every year.

In addition, using credit-monitoring tools like Credit Karma or Mint can help you keep an eye on your score and provide tips for improvement. Check out these free services:

• Credit Karma – Free credit score and reports.
• Mint – Budgeting tool that includes credit score tracking.

7. Keep Your Credit Utilization Low

Credit utilization is the ratio of how much credit you use compared to your total credit limit. It’s advisable to keep this number below 30%. For example, if your total credit limit is $1,000, try not to spend more than $300. High utilization can negatively impact your credit score, even if you pay off your balance each month.

If you have a secured credit card, consider asking your issuer for a credit limit increase once you’re comfortable, which can lower your utilization ratio. For more information on credit utilization, visit The Balance: What Is Credit Utilization.

8. Be Patient and Consistent

Building credit takes time. It won’t happen overnight, but with patience and consistency, you’ll start to see progress. Continue to make on-time payments, keep your credit utilization low, and monitor your credit regularly to ensure you’re staying on track. Over time, your score will increase, unlocking more financial opportunities.

To help you stay motivated, read this article on NerdWallet’s Tips for Building Credit.

Final Thoughts

Building credit from scratch may seem challenging at first, but by taking small steps and using the right tools, you can establish a solid credit history. A secured credit card, a credit-builder loan, or becoming an authorized user on someone else’s account are all great starting points. And remember, patience is key—good credit doesn’t happen overnight, but consistent, responsible credit behavior will pay off in the long run.

Have you recently started building your credit? Share your tips or questions in the comments below!