Financial Advice

Building Credit from Scratch

If your credit history is sparse, start now to build it up. Having little or no credit is easy to fix with time, patience, and a strategy.

Published Mar 1, 2022 | Updated May 8, 2024

Does it sometimes seem like the only way to get credit is to already have credit? It’s kind of true. You might face a lack of credit history because you are a young person, or are new to the United States, or have not had debt or bills in your name for a long time. Because lenders don’t have much information about you, it’s hard for them to make the decision to extend credit to you. This could mean that they turn you down—which can have a negative effect on any credit you might have.

Fortunately, having little or no credit can be an easy problem to fix with time, patience, and a strategy. If your credit history is weak or nonexistent, start now to build it up. You never know when you might need it.

Did you know that UFCU offers a starter card? Our Great Rate VISA® is an excellent card to begin with if you meet requirements.

Start Small

A good first step is to apply for a secured credit card, which requires a savings account with enough money to cover your card payments. This is different from a debit card that draws down on your checking account. Be aware that if you don’t make your payment, the financial institution is authorized to take it out of your savings, but they will add a late fee and might revoke the card.

If you cannot find a secured credit card to apply for, you can target a reputable business that might grant you a small amount of credit. For example, consider getting a low-limit retailer’s charge card from a business where you are already a customer.

Before you apply, ask for a copy of the terms and conditions that apply to the type of credit you are interested in. Study them to understand what you will pay. Also make sure the credit grantor will report your bill-paying history regularly to a credit bureau. A lender who doesn't report your information to credit bureaus is not helping you build a positive credit history! Narrow your list to just one good candidate and avoid submitting applications to other places.

You might be asked for additional information to prove your identity and your ability to pay. These documents might include a Social Security card, a pay stub, or a letter from your landlord or roommate. Promptly provide each document to complete your application.

Build Slowly

When you are granted the card or loan, it’s important to use it regularly. Show the credit grantor that you don’t spend more than you can pay off. Consistently make your payment completely and on time. The credit grantor shares this information with the credit bureaus each month. Steadily and surely, you'll establish a history of responsible credit use. Your credit grantor may offer to increase your limit, which is a good thing.

Apply for a second card after several months’ success with your first card. Two cards should be plenty to build your credit if you continue using your credit cautiously and paying your bills on time. Soon you won't have to ask for credit because credit grantors will come to you. Be picky, and don’t accept most offers—know your financial limits and use your credit moderately.

Don’t Give Up!

If you're turned down for credit, ask the credit grantor to explain why. Maybe your salary is not high enough or you haven't lived at your current address long enough. Time may resolve these matters. Reapply for credit when your situation changes.

If it’s still a mystery why your progress has stalled, consider asking a credit counselor for recommendations.

An option for some people is to ask a responsible relative or frugal friend with an established credit history to cosign a loan or credit card application. A cosigned account appears on both your and the cosigner's credit reports. Make sure you can trust your cosigner, then take extra care to repay your cosigned debt promptly. If either cosigner lets debt spin out of control, the other's credit will be hurt. After a few months, try again to get credit on your own.

Make It a Habit

Practice good credit maintenance with these common-sense habits:

  • Set a budget and stay with it
  • Avoid taking out more credit than you can handle
  • Pay your bills on time, including any household utility bill in your name

Think of your credit-building project as a path to a more secure future for yourself. Before you know it, you will be enjoying the peace of mind and the many benefits of a healthy credit history.