No Credit? Don't Sweat It. Here's How to Build It From Scratch


Everybody loves a bargain. Whether you’re saving a little money by sleuthing out drink specials or big bucks by renegotiating your cable bill, a penny saved is a penny earned.

But what if there was a way to save huge on upcoming big-ticket expenses like a car payment and mortgage?

Look no further than a solid-gold credit rating. With an excellent score, you can qualify for better rates (which equal lower payments), saving you literally tens of thousands in interest payments over your lifetime.

There’s just one snag: “On the whole, millennials use less credit than their elders,” says Pam Wilson, head of financial coaching for Guidewell Financial Solutions, a credit counseling and debt management firm. “As a result, they may not have enough credit history to warrant the best rates.”

Sound familiar? Then follow these five steps to top-notch credit.

Start with a clean slate.

Your first step is to make sure your credit report is squeaky clean. Believe it or not, even those who’ve never applied for credit could have score-damaging blemishes on their report. “Too many times, we see young adults who weren’t aware certain things would be reported, or worse, who have been unwitting victims of identity theft,” says Thomas Nitzsche of Clearpoint Credit Counseling in Atlanta, Ga.

Another common issue is finding negative information that doesn’t belong to you. This could happen if, for example, a person whose Social Security number is one digit different than yours has a delinquent debt that mistakenly shows up on your report, says Bruce McClary, vice president of communications for the National Foundation for Credit Counseling.

That’s why you should eyeball your report from all three credit bureaus (TransUnion, Equifax and Experian) via It’s free once a year from each agency. If you spot a mistake, dispute it with the credit agency as soon as possible.

Apply for an entry-level credit card.

When you’re ready, start shopping for a credit card. A good place to start is with your bank or credit union, but you can also search online for the best cards for those with no or low credit—and look for those with no annual fee.

Your first card is likely to have a low limit and high interest rate. After all, as McClary points out, without credit history, lenders don’t know if you’ll pay your bills on time—or at all. If you’re bummed by the high rate or lack of perks, remember that you won’t have to rely on an entry-level card forever. “It just serves the purpose of getting your foot in the door,” McClary says.

Having trouble finding a lender? Look into secured credit cards, which require a deposit equal to your credit line. (For example, a $1,000 deposit gets you a card with a limit of $1,000.) Because the bank has your cash as collateral, these cards are generally easy to qualify for, regardless of your credit history. Just remember: “A secured credit card is not a prepaid card, and you still must pay for charges each month,” Nitzsche says.

As a last resort, ask a family member or partner if you can become an authorized user on their credit card, or if they’ll cosign a new account for you, Wilson suggests. But know that sharing credit can be dangerous—so it’s important that you trust your cosigner to handle credit responsibly, and you do the same.

Establish good habits.

Once you’ve got credit, do all you can not to blow it (and your bottom line)—like paying your bills on time every time. McClary cautions that even a minor slip as you’re building credit can cause your score to drop substantially because you don’t have other accounts to offset a misstep.

“If you drop a pebble into an ocean, it only makes small ripples, but if you drop it into a mud puddle, it splashes,” he says. “Timely payments account for 35 percent of your credit score, with all other categories, such as percent of credit used and length of credit history, accounting for smaller slivers.”

Next, avoid overspending, and pay your balance in full each month. This not only ensures that you won’t pay hefty interest charges, but also that your utilization ratio—or the amount of credit used compared to your limit—remains under 30 percent, which is where you want it to stay. If you notice yourself running a monthly bill that exceeds 30 percent, make two payments each month, so that you’ll be safe no matter when your lender reports your balance to the credit bureaus.

Finally, be careful not to rack up too many credit inquiries. Every time you apply for credit, the request is noted by the credit bureaus. Multiple inquires over a short period of time—such as applying for three new cards at the mall—might indicate that you have an appetite for credit and give lenders pause, McClary says.


While you’re climbing the credit ladder, remember that every on-time payment helps build your score. There are multiple variables, but a two-year cycle of timely payments is a solid benchmark for when you can expect more attractive credit offers to come your way, McClary says.

As you get closer to the top, you may want to diversify your lines of credit by applying for another credit card, for example—and maintaining your good habits, of course. “This shows you’re able to manage multiple creditor obligations,” McClary says.

But don’t close your older account, even if you stop using it. “Closing your [first] card could hurt your credit history by shortening it,” Wilson says.

Check in on your progress.

Although it’s true that excessive credit pulls can hurt your score, you can check up on your own credit without penalty in what’s called a “soft hit.” Even though you started with this step, looking at your credit report for a snapshot of your progress—and to ensure new mistakes haven’t popped up—is key to maintaining the good credit you’ve built.

To see your credit score, contact each of the reporting agencies, which will supply it for $8 to $12, McClary says, or take a peek for free at a site like CreditKarma. You also could look into one of the many credit cards from major issuers, like Citi and Capital One, that offer a monthly credit score update as a cardholder benefit.