How to Build a Good Credit Score From Scratch

No credit history yet? Here's exactly how credit scores work in the U.S. and the simplest, low-cost ways to build a strong score in your first year.

In the United States, your credit score affects far more than loans. Landlords check it before renting you an apartment, insurers may use credit-based scores to set premiums in many states, and a good score can save you thousands of dollars in interest on a car or home. If you're young, new to the country, or have simply never borrowed money, you may have no score at all. The good news: building one is straightforward if you know how the system works.

What a credit score actually measures

A credit score is a three-digit number that predicts how likely you are to repay borrowed money on time. The most widely used scores, FICO Scores, range from 300 to 850. VantageScore, a competing model, uses the same range. Scores are calculated from the information in your credit reports, which are kept by three national credit bureaus: Equifax, Experian and TransUnion.

FICO publishes the general weight of each factor in its scores:

• Payment history (about 35%) — whether you pay on time. This is the single biggest factor.
• Amounts owed (about 30%) — especially how much of your available credit card limits you're using, called your credit utilization.
• Length of credit history (about 15%) — how long your accounts have been open.
• New credit (about 10%) — how many accounts you've recently applied for and opened.
• Credit mix (about 10%) — having different types of credit, such as a card and an installment loan.

Step 1: Check whether you already have a credit file

Start by pulling your free credit reports at AnnualCreditReport.com, the only website authorized by federal law to provide free reports from all three bureaus. The bureaus now offer free reports there every week. If no file comes back, or it's nearly empty, you're "credit invisible" and need to open your first account.

Step 2: Open a starter account

You can't build credit without credit. These are the most common first steps, from easiest to qualify for:

Secured credit card

You put down a refundable deposit — often a few hundred dollars — which usually becomes your credit limit. You use the card like any other, and the issuer reports your payments to the bureaus. Look for a card with no annual fee that reports to all three bureaus and offers a path to "graduate" to a regular card and get your deposit back.

Credit-builder loan

Offered by many credit unions and community banks, these work in reverse: the lender places a small loan amount in a locked savings account, you make monthly payments, and when you're done you receive the money. Your on-time payments are reported along the way, which also adds an installment loan to your credit mix.

Becoming an authorized user

If a parent, partner or trusted friend has a card with a long, spotless history, they can add you as an authorized user. Many issuers report that account on your credit file too. You don't even need to use the card. Make sure the primary cardholder pays on time and keeps balances low — their mistakes can affect you.

Rent and utility reporting

Some services and landlords can report your on-time rent payments to one or more bureaus. Not every scoring model counts this data, but it can help thicken a thin file.

Step 3: Use credit the right way

1. Pay every bill on time, every month. Set up autopay for at least the minimum payment so you never miss a due date. A payment that is 30 or more days late can be reported and may stay on your report for up to seven years.
2. Keep utilization low. A common rule of thumb is to use less than 30% of your limit, and lower is better. On a $500 limit, that means keeping your reported balance under $150. Paying your balance before the statement closes can help.
3. Pay in full when you can. Carrying a balance does not build credit faster; it just costs you interest.
4. Don't apply for lots of cards at once. Each application usually triggers a "hard inquiry," which can lower your score slightly and stays on your report for about two years.
5. Keep your oldest account open. Closing it can shorten your average account age and reduce your available credit.

How long does it take?

A FICO Score generally requires at least one account that has been open for six months or more and recent activity on your report. Many people see a first score within about six months of opening an account. With consistent on-time payments and low balances, it's realistic to reach a "good" score — generally 670 and above on the FICO scale — within a year or two.

Watch out for "credit repair" scams

No company can legally remove accurate negative information from your credit report. Be wary of anyone who demands payment upfront, tells you to dispute accurate information, or suggests creating a "new credit identity." Everything a legitimate credit repair company does, you can do yourself for free. If you find a genuine error, see our guide on how to dispute credit report errors.

This guide is general information, not financial advice.