How to Establish & Build Your Credit from Zero

Disclaimer: Upstart is not a financial advisor, the following content is for informational purposes only.

A good credit score can make a big difference when you want to get a credit card or take out an important loan. But establishing your credit for the first time can feel like a formidable task. 

Fortunately, there are several safe and popular routes for building credit when you’re starting from zero. Unlike other credit accounts, these often don’t require a good—or any—credit score.

5 ways to build credit for the first time

As you’re building credit, it’s important to know that there are three major consumer credit bureaus: Equifax, Experian, and TransUnion. Each bureau maintains its own data, and your three credit reports can be the basis for your different credit scores

When you apply for a new account, you won’t necessarily know which credit report or score the company will want to review. Which is why having accounts that are reported to all three credit bureaus is ideal. 

Many major lenders and lending platforms, including Upstart, report to all three. But some organizations—especially smaller companies—may only report to one or two bureaus. Keep this in mind as you’re researching your options within the categories below. 

1. Secured credit cards

A secured credit card is similar to a traditional (i.e., unsecured) credit card, but you have to send the issuer a refundable security deposit to open your account. The credit card company holds onto the deposit in case cardholders stop making payments, which is why it’s easier to qualify for secured credit cards. 

You can choose how much to send, although there’s often a $200 minimum security deposit, and your deposit will generally determine your credit limit. The card issuer will return your deposit when you close your account. Or, there are a few secured cards that may automatically refund your deposit after you’ve shown you can responsibly manage the account. 

There are also FinTech banks that offer a different type of secured credit-builder card. Instead of sending a security deposit upfront, you set money aside in a secured account as you go. It’s similar to a debit or prepaid card. But unlike those types of accounts, these secured cards can help you build credit. 

2. Unsecured credit cards for building credit

If you want a credit card but don’t want to send a security deposit, there are some unsecured cards for people who are new to credit. However, these cards may have high interest rates, and some have annual fees. 

Other options for unsecured credit cards include student cards, which could offer rewards without an annual fee. You’ll need to be a student to qualify, but card issuers won’t expect you to have established credit or a high income.

There are also a few newer credit card issuers that don’t rely as heavily on credit scores. They may ask you to link your bank account when you apply and make a decision based, in part, on non-credit factors, such as your income, expenses and banking history.

3. Credit-builder loans and funding circles 

You can also use installment loans to establish and help build your credit. 

With a secured credit-builder loan, the funds get locked in a savings account. Depending on the agreement, the money may become available as you repay the loan or once it’s paid off entirely. Credit-builder loans often have fees or charge interest, but you may be able to earn interest on your locked-up savings to minimize your total cost. 

Another option may be a credit-building lending circle. Mission Asset Fund (MAF), a nonprofit, helps organize and run these across the country, although they’re not available everywhere. MAF’s lending circles don’t require a credit check and there are no upfront fees or interest charges. 

With the lending circles, groups of six to 12 people sign up and agree to make $50 to $200 monthly payments. Each person contributes the chosen amount, their payments are reported to the credit bureaus, and one person receives the monthly pot. The recipient rotates until everyone gets the money—MAF ensures you’ll get the full amount even if a lending circle member misses their payment. 

While both of these options can be helpful for building credit, unlike traditional loans, you won’t necessarily receive the funds upfront. 

4. A personal loan through Upstart 

If you need a loan but don’t have a credit history, Upstart offers unsecured personal loans that you can use for almost anything. Many people take out a loan to cover major expenses or to consolidate high-rate credit card debt.

Upstart takes a more holistic view of applications than many lenders. Your employment and educational experience* could help you qualify for a loan. And you don’t need a credit score, although it may be a factor if you have one. 

Your monthly loan payments also get reported to all three major credit bureaus. As a result, while you don’t need credit to get a loan from Upstart, repaying the loan can help you establish and improve your credit

5. Non-lending options for building credit 

There are also a few ways to improve your credit without borrowing money or opening a new credit account.

  • Authorized user accounts. You could ask someone to make you an authorized user on their credit card and have the account’s information reported to the credit bureaus under your name. Contact the card issuer first to ask about its rules for reporting authorized user accounts. Also, try to ask someone who you’re comfortable openly discussing finances with and who responsibly manages their card.
  • Rent reporting. You may be able to get credit for your on-time rent payments through a rent reporting service. Many of the programs require the landlord or property manager to participate. But there are a few that you can sign up for directly.
  • Add other payments to your credit report. There are also programs that you can use to add information to your credit report. With a tool like Experian Boost or eCredible Lift, you can build credit with common household bills, such as your internet, cable, phone, and utility payments. However, these only work with one credit bureau—Experian and TransUnion, respectively—and eCredible Lift has a subscription fee. 

Tips for building excellent credit

Establishing your credit is an important step, but good credit is what’s going to open the most doors. Excellent credit can help you qualify for more financial products, such as premium rewards credit cards. It can also lead to more favorable terms on loans, especially from lenders that don’t use Upstart-style criteria, such as mortgage lenders.

A few simple rules of thumb can take you a long way:

  • Try to avoid missing payments. Your payment history is one of the most important factors in determining your credit scores. On-time payments can help you build a positive credit history, but late payments can hurt your credit scores. Even falling behind on a bill that isn’t reported to the credit bureaus could hurt your credit if your account is sent to collections.
  • Keep your credit utilization rate low. For credit cards and other revolving credit accounts, the portion of your available credit that you’re using (called your credit utilization rate) can be important. Keeping it below 30% is a good rule of thumb—for example, a balance below $334 if the card has a $1,000 credit limit. But an even lower utilization rate is best for your credit scores.
  • Limit how often you open new accounts. New credit applications can lead to a hard inquiry, which may hurt your credit scores a little. (You can check your rate with Upstart with a soft credit inquiry, which won’t impact your credit scores.) Opening new accounts could also decrease the average age of your accounts—a longer average age is best for your credit scores. 

You could also make a practice of monitoring your credit reports and scores. While it may be daunting at first to build your credit and may feel like a formidable task, it is possible once you have a plan set in place.

*Neither Upstart nor its bank partners have a minimum educational attainment requirement in order to be eligible for a loan.

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* When you check your rate, we check your credit report. This initial (soft) inquiry will not affect your credit score. If you accept your rate and proceed with your application, we do another (hard) credit inquiry that will impact your credit score. If you take out a loan, repayment information will be reported to the credit bureaus.

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