Tips to establish first-time 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.

You might have no credit history, otherwise known as “credit invisibility.” Or you might have thin credit, which means you don’t have enough credit history to be scored. Whatever the case, there are several ways to establish credit. The general idea behind each strategy involves building a solid history over time with responsible credit use. 

Before you start building credit, it can be helpful to understand some of the fundamentals. 

A credit score is a number that represents how likely you are to pay back a loan on time. To calculate your credit score, a credit scoring company uses the information in your credit report and a mathematical formula or model.

Keep in mind that there are multiple credit-scoring models and credit scores. And credit-scoring companies like FICO® and VantageScore® even have different versions of their own scores. So you might see slight differences in your scores depending on what model was used.

There are many ways to build credit. But there are some important things to keep in mind with any path you choose: Remember to use credit responsibly, spend within your means and pay bills on time. Together, these habits can help you build credit from scratch.

Need access to credit? Here are four ways to get started.

1. Apply for a credit card

Lack of credit history could make it difficult to get a traditional unsecured credit card. But there’s another option called a secured credit card. With a secured card, you make an initial deposit, just like when you move into a new apartment. As you make payments on the card, you start to build a positive credit history. It could also help you transition to your first traditional credit card.

2. Become an authorized user

If a friend or loved one trusts you and is willing, they could make you an authorized user on their card. Becoming an authorized user allows you to make purchases. But the primary account holder is ultimately responsible for payments. Some issuers, like Capital One, may also provide online access for eligible authorized users. 

Being an authorized user could allow you to benefit from the primary account holder’s credit history. But negative actions could also be reported, which could affect the primary account holder’s credit and your credit too.

Be sure to check with the card issuer to see how they handle reporting authorized users to credit agencies. 

3. 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 a loan 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 like they might if you were an authorized user.

4. Take out a credit-builder loan

Credit unions may offer small loans—anywhere from $300 to $1,000—that allow you to build your credit history. The loan is deposited into a locked savings account by the lender, and you make small payments over a fixed period to pay it back. Payments are reported to credit agencies to help you establish credit. And once the loan is paid off, you get access to the money in the savings account.

Building credit is a process. But that doesn’t mean you’re totally out of luck if you’re just starting to establish credit. In recent years, some companies have worked on developing alternative scoring methods to determine creditworthiness. The new methods consider information not typically used in credit reporting, including rent payments, phone bills and bank account transactions.

With these alternative scoring methods, you could build credit by paying your bills.

There’s no one-size-fits-all answer to the question of how long it takes to establish credit. But one thing is certain: There are no shortcuts.

Establishing good credit takes time. But the good news is that you could get a step closer every time you use credit responsibly. 

Once you’ve started to build credit, consider monitoring your progress. 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 copies of your credit reports from all three major credit bureaus. Just visit AnnualCreditReport.com to learn how. 

Start with assessing where you currently stand. You can then decide whether something like a secured credit card is right for you. And as you build credit with responsible use, you could set yourself up to take advantage of the opportunities good credit offers.