The credit system is broken.
In order to borrow money, you need a credit history. But you can’t build a credit history without borrowing money.
This means that people get stuck with limited access to credit, higher interest rates, and difficulty securing utilities and housing. It also makes people more vulnerable to predatory lending practices like payday loans and dramatically inflated interest rates.
It’s easy to assume this only affects young people, but it also affects new immigrants, limited income families, and people from underserved communities.
People in these groups often find themselves in this catch-22 situation, unable to establish credit because they’re struggling to build their credit history.
But I’m here to tell you that you can do it.
In this article, I’m going to walk you through all the best options for establishing credit, even if you have ZERO credit history:
Get a secured credit card
Become a trusted user
Use a credit builder loan
Report rent and utility payments
Responsible financial habits
Monitor your credit score and report
Join the "Start Repairing Credit" Challenge
A secured credit card is a type of card that works just like a regular credit card, but it requires a security deposit up front.
It’s very similar to renting a property — where you’re often required to give a security deposit before you move in. The credit provider then holds this deposit and will refund the amount once the account is closed or converted to an unsecured credit card.
Depending on the lender, your security deposit might be the amount of credit you’ll be able to spend on the card. For example, a deposit of $300 may give you a $300 credit limit on your card. There are other options that allow more credit, so shop around to find the right option for you.
This is a great option for anyone trying to build or rebuild their credit. But remember—even though you’ve paid a deposit up-front, missed payments will still affect your credit history negatively. So make sure you make your payments every month.
Being an ‘authorized user’ on someone's credit card is just as it sounds — you’re named on a family or friends credit account as an authorized person. This means you're given your own card and can make purchases from this account.
You will not have the power to make changes to the account or be responsible for repayments. But providing you use the card responsibly and the primary cardholder makes timely payments, it will probably have a positive impact on your credit score.
It’s not guaranteed that becoming an authorized user will improve your credit, but many credit card issuers will report authorized users to bureaus. And the longer you’re an authorized user, the bigger the impact it can make on your credit history.
This doesn’t mean you should rush out to be named on just anyone's credit card, though. You should choose carefully, making sure the primary cardholder has good credit habits and responsibly manages their account.
It only helps your credit history if they’re good borrowers. And if they’re not, it could put you in an even worse position than where you started.
A credit builder loan is different from a traditional loan, and is more like a long-term savings account with the added bonus of building credit.
Basically, you make fixed payments—including interest and fees—into your credit-builder loan account. Then, at the end of the loan term, the balance of the loan is returned to you.
Essentially, it’s a loan where you never receive the money you’ve borrowed.
This might sound odd, but it's actually a very clever way of allowing you to build credit, without putting the lender at risk. And you get the added benefit of saving a decent amount of money for a later date.
The reason this is beneficial for building credit is that it can help you establish a record of on-time payments and good financial behavior that will be reported to credit bureaus.
Be careful, though. Some of these credit-builder loans come with upfront fees or monthly maintenance costs. Interest rates can also vary lender-to-lender, so make sure to compare options before committing.
Unfortunately, your rent and utility payments aren’t commonly reported to credit bureaus, which means they don’t contribute to your credit history.
(They should be, but that’s a conversation for another day)
But that doesn’t mean it’s not possible.
There are more and more rent reporting services popping up, which work with landlords or property managers to report rent payments to credit bureaus.
These are often landlord-enrolled, meaning your landlord would need to register for you to use the service. If you find a service where you can apply yourself, you will still want to notify your landlord, as these companies will probably need to confirm your tenancy and rental history.
Once everything is confirmed, they will report this information to certain bureaus. The rent reporting service should state who they report to on their website.
The only issue with this approach is that not all landlords or utility companies are willing to participate in this kind of reporting. Hopefully, it will gain more popularity, but you’re limited by this low-adoption.
Another option is to use a free tool like Experian boost, which connects to the bank account you pay bills from. You can then self-report rent and utility payments, which adds them to your Experian credit history.
This can help a lot, but will only affect your Experian credit score and credit report. This can limit its impact.
Maintaining responsible financial habits is one of those things that’s often easier said than done. Life happens, mistakes are made, and very quickly, you’re back where you started.
But by breaking this down into individual habits, it becomes easier to stay on track and catch areas where you might be slipping.
And once you’ve built up momentum, you’ll be amazed at not just how easy it is, but how much it helps you to build your credit up, brick-by-brick. Here are some key habits that will do wonders for your credit history and credit score:
I get it — things don’t always go to plan and you sometimes have to use your credit card to get yourself out of a pickle. That’s fine, but doing this regularly can be very detrimental to your credit score.
If you are using credit cards regularly, avoid maxing them out, and try to pay more than the minimum amount each month.
Budgeting is a great tool to get a perspective of your comings and goings on a regular basis. It can be an overwhelming task at first, but well worth it in the long run.
There are loads of tools to help with budgeting, but start simple by downloading your monthly bank statements and popping it into a spreadsheet. Who knows, you may find a sneaky subscription you forgot you were paying?
This one is important — missed payments make up a whopping 35% of your credit score!
We all have slip-ups sometimes, but when building credit, you want to minimize this as much as possible. Setting up direct debits can help with this, so can changing payments dates to a day that is convenient for your budget. A day or two after payday is my recommendation.
Planning for the future can be difficult. Maybe you want to go on a trip, save a deposit for a new rental, or just want savings for emergencies. Whatever it might be, your goals are important.
Financial planning can help you achieve those goals. Decide what your target amount is, and decide how much you need to put aside each month to achieve that goal.
Not only is this deeply fulfilling, but it also can help you when you find yourself in a sticky situation. By having a savings pot, you won’t rely so much on your credit cards. This is better for your long-term finances, and will also have a better impact on your immediate credit score.
It’s important to check your credit score and report regularly, not only to better understand your credit but also because 34% of Americans have errors on their credit report.
All three major credit bureaus (Experian, Equifax, and TransUnion) have credit reports you can access for free. But only Experian and Equifax tell you your credit score directly on their website.
You can also use third-party apps and websites to get free credit scores. They will use the Experian, Equifax, and TransUnion data to aggregate this information, and often make recommendations on how to improve your score.
If when you look at your credit report you see an error, it’s vital that you dispute this error as quickly as possible.
The easiest way to check your credit report for inaccuracies is with Credit Repair Cloud. You can see everything on your credit reports, and keep track of your disputes all in one place.
While it can take 3-6 months to see your first credit score with no history, building good credit usually takes at least a year of responsible credit management.
Building credit without a credit history can be challenging, but there are options like secured credit cards and authorized user status to start building credit.
Consider credit-builder loans, authorized user accounts, or rent reporting services to build credit without a traditional credit card.
The fastest ways to build credit from scratch is with secured credit cards, being a trusted user, using a credit-builder loan, and reporting rent and utility payments.
If you're looking to handle more clients without getting bogged down by the admin, start a free 30-day trial today to see how Credit Repair Cloud makes your life easier.
Join the Start Repairing Credit Challenge to improve your credit score and discover how to earn extra income repairing credit for others.
Check out the Credit Repair Cloud blog to learn more about credit repair techniques and strategies