Personal Finance

Steps to Building Your Credit History

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Do you need to buy a car, rent an apartment, or even apply for a job? Each of these essential financial decisions are influenced by your .

If you don’t have a credit score, it could hold you back when you want a credit card, , or . It could also be a problem when you fill out a rental application, apply for a job, or try to get an insurance policy.

Most adults in the U.S. have a credit score, right? You may be shocked to learn that millions of Americans are credit invisible. If you are one of those individuals or know someone who is, don’t lose heart. There are steps that you can take to establish credit.

What does “credit invisible” mean?

Being “credit invisible” means that you don’t have any credit history recorded with credit bureaus. You are invisible to them and anyone who requests a credit report.

According to a report published by the , approximately 26 million Americans fall into the credit invisible category. The report also found that another 19 million adults had too little credit history or not enough recent activity to generate a credit score. That’s an estimated 45 million Americans who lack a credit score.

How do I build my credit history if I have none?

Establishing a credit history is an achievable task. The key is to make monthly on-time payments that are reported to one or more credit bureaus, such as Equifax, Experian, and TransUnion. Here are some options you can consider.

Credit Cards

For most people, the easiest way to establish credit history is through a credit card. If you’ve been turned down for a traditional credit card, there are three other options that are available to most individuals.

Secured Credit Cards

A secured credit card is generally easier to get because it’s linked to a savings account. The limit on a secured credit card is often the balance you have in the linked savings account or a percentage of it.

By using the card, making on-time payments, and the bank reporting your payments to the credit bureaus, you can begin the process of building your credit history. It may also increase your chances of being able to obtain a traditional credit card account in the future.

Joint Account or Authorized User

Another option is opening a joint account with someone who has established credit or becoming an authorized user on a person’s existing account. Your parents, spouse, family members, or even a close friend may be open to this. Because you are on the account, the payment history for it may appear on your credit report and will be used to calculate your credit score.

Retail Store Credit Cards

Gas stations, department stores, and other retail businesses often offer credit cards that can only be used at their establishments.

Generally, you can expect a low limit and a higher interest rate than those of a traditional credit card. And like any form of credit, it’s important to keep charges within your limit and make your payments on time each month.

Credit Builder Loans

A credit builder loan, often available at credit unions or community banks, may also be helpful if you have little or no credit history. If you’re approved, the loan money is put into an account that can’t be accessed until the entire loan amount is paid off.

By making regular payments over a set period, you prove that you can repay a loan. Make sure you choose an amount that you can easily repay and confirm that your payments will be reported to at least one credit bureau.

Lending Circles

Although this type of lending has been around for centuries, formal lending circles can be used today to establish a credit history.

Here’s how it works:

  1. A group of people pool their money.
  2. Repayment amounts are withdrawn from each member’s bank account.
  3. Each month, one member receives a loan until everyone in the group has one.
  4. The on-time payments are then reported to credit bureaus.

Lending circles can be operated by non-profit and for-profit companies.

Self-Reporting Payments

Self-reporting involves using a third-party service to provide credit bureaus with payment information not normally reported to them. For example, there are companies that report rent, utility, and cell phone payments to one or more credit bureaus.

Banking Relationships

Having a or account won’t directly build your credit history because that activity isn’t reported to credit bureaus.

However, establishing a good relationship with a bank can be helpful to you when you apply for credit. Lenders often use your bank account information, along with your credit history, to help determine if you are a good candidate for a credit card or loan.

Credit Score Monitoring

Once you establish credit, you should track any changes in your score. Checking your credit score is an easy process and should be done frequently. Your ongoing spending habits affect your credit score, so it’s important for you to take note of them and adjust if necessary.

Establish Your Credit History

It’s never too late to establish your credit history. Obtaining a nontraditional credit card may be a step in the right direction. You can also team up with someone else who has an established credit history via a joint account or by becoming an authorized user. Other options include taking out a credit builder loan, joining a lending circle, or self-reporting payments.

Regardless of the method you use, it’s crucial to have your payments reported to the credit bureaus so you can build your credit.

Axos Bank is here to help you make progress towards your financial goals with and – both free to everyone through the .

Steps to Building Your Credit History

This blog post was published by Axos Bank on March 3, 2021, and last updated on August 30, 2023.

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