Five ways to build your credit

Your credit score is created from your credit history – how you’ve handled money and debt in the past. But what if you’re new to credit and don't have any history?

If you don't have a credit record, you're not alone. A reported 28 million people in the U.S. are credit invisible, which means they have no history with the three main credit reporting agencies. Millions of other people are unscorable, with too little credit information or no recent activity.

Companies need to see evidence that you're trustworthy. And without a credit score or credit history, they’re less likely to work with you. That's why building credit is so important. It's not just about buying things or getting loans; it's about creating opportunities for your future.

You need credit to get credit, which seems like an impossible problem to solve. The good news? There are five steps you can take now to build your credit history and improve your score.

1. Get a secured credit card

If you don’t qualify for a traditional credit card, consider a secured credit card. It works just like a traditional credit card but is secured by a cash deposit made to the bank. Your deposit serves as collateral if payments are not made. Just like a traditional card, you swipe it when making purchases and pay off your balance at the end of the month to avoid accruing interest.

If for some reason you can't pay back the balance, the bank has the right to take your collateral to recover their losses. But if you demonstrate good credit card management for a sustained period, your bank may return your deposit and increase your credit spending limit. A secured credit card can help you build credit even if you’re starting from scratch.

2. Use a credit builder product or secured loan

Lenders, typically credit unions or community banks, may offer credit builder loans or products as a way for you to build credit. How does it work? Your lender holds the money you borrow into a savings account you can't touch. You make monthly payments with interest until you've paid off the loan and the lender releases it to you when the loan is repaid. The lender reports your payments to the credit bureaus, helping you establish a positive payment history.

A secured loan is another option if you have money already deposited in a bank or credit union. With this type of loan, the money in an existing account is the collateral.

3. Find a cosigner

If you're having trouble getting a loan or credit card on your own, consider asking someone with good credit to cosign for you. A cosigner gives a lender added assurance that a loan will be repaid.

Cosigning a loan means that person is agreeing to pay back the loan or any missed payments if you can't. And the cosigner's credit will also be dinged for late or missing payments and defaults. It's a big ask, but it can be a powerful way for you to jumpstart your credit.

4. Become an authorized user

Adding your name as an authorized user to someone else’s credit card account can also help you build credit. Essentially, you get a card linked to a primary cardholder’s account. You can make purchases and the primary cardholder is responsible for paying the bill. Their good credit habits can help boost your credit score.

Becoming an authorized user on someone else's credit card does have potential drawbacks. Because authorized users are usually trusted friends and family members, a missed payment or other issues can cause tension and even damage important relationships. And the financial risk for primary users is steep because they're legally responsible for paying off any credit card balances. If you spend too much, it could leave them with a hefty bill to pay.

5. Get credit for your bills

You're probably already making regular payments – rent, utilities, cell phone payments – that could be helping your credit score. Rent-reporting services report bills you're already paying to the credit bureaus. The cost will depend on the service; some are free and some charge a fee.

Some credit scores consider payments like these, and that may be enough for you to qualify for a loan or other credit. Before you use a rent-reporting service, know which credit bureaus will consider your regular payments and which credit scores take those payments into account.

Small steps, big results

These methods can help build credit, but they also require a commitment to responsible financial behavior – spending within your budget, making on-time payments, and keeping the amount you owe as low as possible.

Building credit doesn't have to be complicated, even if you're starting with a limited credit history. Start small, make your payments on time, and you'll see your credit score start to rise.