How to establish credit

Credit is important. And having good credit can make it easier to rent an apartment, take out a car loan and buy a home, among other things. But it can be hard to know how to establish credit for the first time.

Luckily, there are several ways to establish credit. The general idea behind each strategy involves building a solid history over time with responsible credit use. 

Key takeaways

• Opening a credit card, becoming an authorized user and applying for a credit-builder loan are some ways to establish credit.
• From there, building good credit relies on using credit responsibly by doing things like paying bills on time every month. 
• You’ll need at least one credit account open and reporting to at least one of the major credit bureaus for at least six months to generate a FICO® credit score. You can get a VantageScore® score as soon as the first time your new account gets reported to the credit reporting agencies.
• Once you’ve established credit, monitoring your progress can help keep your credit building on track.

Before you start building credit for the first time, it can be helpful to understand some credit basics. 

Your credit history is the record of how you handle your money and debt. It includes information about your loans and credit card accounts that have been collected by the three major credit bureaus—Experian®, Equifax® and TransUnion®. When credit bureaus receive that information, they add it to your credit reports. 

To calculate your credit scores, a credit-scoring company like FICO or VantageScore applies a mathematical formula or model to the information in your credit reports. Keep in mind that there are multiple credit-scoring models and credit scores. So you might see slight differences in your scores. 

Lenders use your credit scores to estimate how likely you are to repay your debts on time. 

If you have no credit history or thin credit, it’s difficult for credit-scoring companies to generate a credit score for you. And if lenders can’t see a credit score, they might not be willing to extend you credit.

There are many ways to start building credit. You might even be able to do it without a credit card. But however you do it, you’ll want to use credit responsibly, which includes keeping spending within your means and paying bills on time. 

Ready to establish a credit history? Here are five tips that can help you get started.

1. Apply for a starter credit card

One way to establish credit is to apply for a credit card. But without a credit history, it can be difficult to get an unsecured credit card. 

There’s another option called a secured credit card. With a secured card, you make an initial security deposit that’s held by the credit card issuer while the account is open. 

If you choose a secured card that reports to at least one of the three major credit bureaus, you can use it to help build a successful track record. That means doing things like making at least the minimum payment on time each month and using your card responsibly. 

When you’re ready, some credit card companies may allow you to graduate to a traditional card without closing your original line of credit. The process may even involve returning your deposit. 

2. Become an authorized user

If a friend or family member trusts you and is willing, they could make you an authorized user on their credit card account. With access as an authorized user, you’re allowed to make purchases but the primary cardholder remains responsible for payments. Some issuers, like Capital One, may also provide a separate card and online access for eligible authorized users. 

If the card issuer reports authorized users’ activity to the credit bureaus, authorized users may be able to benefit from the primary cardholder’s credit history. But negative actions, like missed payments, could affect both the primary cardholder’s and the authorized user’s credit.

3. Take out a credit-builder loan

Credit unions and community banks may offer credit-builder loans. These are small loans—anywhere from $300 to $1,000—designed to help build credit history. 

The lender deposits the loan amount into a locked savings account. And over a fixed period, the borrower pays it back with relatively small payments. Because the lender reports payments to the credit bureaus, credit-builder loans can help establish credit. And once the loan is paid off, borrowers get access to the money in the savings account.

4. Set up a joint account or get a loan with a co-signer

Much like becoming an authorized user, setting up a joint account or getting a co-signer on an account could also give you access to credit. The biggest difference, however, is that you are both responsible for making payments.

Keep in mind that any late payments or negative actions could affect the co-signer’s credit as well as your own—just as they might if you were an authorized user.

It’s also worth mentioning that most major credit card issuers don’t allow co-signers. 

5. See whether paying your bills could help 

You may be able to build credit just by paying your bills. In recent years, some companies have developed alternative scoring methods to determine creditworthiness. These new methods consider information not typically used in credit reporting, such as rent payments, phone bills and bank account transactions.

If you’re just starting out, you’ll need at least one credit account open and reporting to at least one of the major credit bureaus for at least six months to generate a FICO credit score. FICO scores are used by 90% of top lenders.

With VantageScore, you can get a score as soon as the first time your new account gets reported to the credit reporting agencies.

But there’s no one-size-fits-all answer to how long it takes to build credit. Building good credit takes time, and there are no shortcuts. The good news? You could get one step closer to improving your scores every time you use credit responsibly.

Once you’ve established credit, consider monitoring your progress and credit scores. 

CreditWise from Capital One can help you better understand your score. It’s a free tool available to everyone, and it provides a personalized summary of key factors that may affect your VantageScore 3.0 credit score, provided by TransUnion.

Another way to stay on top of your credit is to check your credit reports. You can get free credit reports from all three major credit bureaus. Just visit AnnualCreditReport.com to learn how.

Establishing credit takes time. And there are a number of methods you might be able to use to establish credit. But one thing they all have in common? To build good credit, you have to use your accounts responsibly. 

If you decide to use a credit card to build credit, Capital One has a number of options worth considering. Learn more in this guide to credit cards for less-than-perfect credit.