3 Ways to Build Your Credit History from Scratch

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Meet Katie. Katie is a role model of financial health. She’s never overdrawn her bank account, always pays her bills on time, doesn’t carry any student loan debt and has diligently used one credit card for four years.

When Katie went to check her credit score, she discovered she was a thin file meaning her years of responsible financial behavior didn’t do much to boost her credit score. In part, Katie’s lack of diversity in her credit history could produce a thin file. Her credit card lender also might not report her card to all three credit bureaus.

Even though Katie is financially responsible, she still has to do some work to build her credit history.

Why you need credit history

If you ever plan to make a purchase you can’t buy outright in cash, such as a home, car or education, then you’re going to need a loan. Lenders want proof that you’re reliable; otherwise you may get hit with high interest rates or declined for a loan.

How do you establish (or rebuild) credit history?

To establish credit history, you need to have – you guessed it – a form of credit. Credit could come in the form of student loans, credit cards, home mortgages or a variety of other ways.

College credit cards

For young adults – especially college students – it’s relatively simple to begin creating a credit history. They can apply for a credit card (perhaps by having a parent co-sign) or take out a loan to help cover the cost of education. You can find a list by filtering for college students on our Cash Back Rewards page.

If you made it to later in your twenties with no debt, no credit cards and no loan of any kind – well congrats – but the time may have come to establish credit history.

Secured Cards

You can still open a credit card by applying for a secured card. A secured card is ideal for people who have no credit, are not students or have recently filed bankruptcy. Typically you provide a deposit (usually a few hundred dollars) and then your credit limit will be a few hundred dollars.

By simply making one purchase a month and paying it off on time and in full, you’ll begin to establish a line of credit and later be able to apply for other lines of credit and increase your “types of credit” factor in your credit score.

Store Cards

If you’re working on rebuilding credit, you can also consider applying for a store card. Banks are more likely to approve consumers with much lower scores through a store card than if the same consumer walked into the bank to apply for a credit card.

Protect your credit

Your credit history and score are huge assets to your financial health. You need to be diligent about ensuring they stay in good shape. Consider these tips the financial equivalent of eating your fruits and veggies:

  • Always pay on time – late or missed payments will cost you dearly

  • Try to keep your credit used below 30% of your available credit (ie: if your available credit is $1,000 then only spend $300)

  • If you apply for a store card to increase your credit then immediately put in the freezer (literally if you have to) and avoid spending

  • Be sure to check your credit reports for accuracy and signs of fraud – you’re entitled to one free report per year from each of the three credit bureaus

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