Building Credit From Zero: A Plain-English Starting Guide

What "no credit" really means

If you've never had a credit card or a loan in your own name, your file at the three nationwide credit bureaus may be empty or close to it. The CFPB's term for that is "credit invisible": no credit history for a lender to score.

That's different from bad credit. Bad credit means a lender can see a problem. No credit means they can't see anything, so they tend to be careful, because there's nothing to go on.

The good news is that you don't have to go into debt to fix it. You need accounts that report your payments to the bureaus, and then you need to pay them on time. That's the whole idea. Everything else is detail.

One more thing before the steps. The way into the credit system isn't always a good one. In its study of how people first get a credit file, the CFPB found that for some people it starts with a collection account, most often an unpaid medical bill. A file that starts that way can make lenders hesitate. Starting on purpose beats starting by accident, and if the accident has already happened, our guide to medical debt on credit reports covers your options.

The first steps that actually get reported

Not everything that feels like credit counts. According to the CFPB, debit cards and cash, prepaid cards, payday loans and "buy here, pay here" auto loans don't help your credit history, because they either aren't borrowing or aren't reported to the nationwide bureaus. Spending your own money, however carefully, leaves no trace on your report.

These starting points do get reported:

A secured credit card. You put down a deposit, say $500, and you can spend up to that amount. You usually need the deposit upfront, so you'll want it saved before you apply. Limits tend to be low, which means you'll want to keep an eye on how much of the limit you use.

A credit-builder loan. You get this from a bank or credit union, and the idea is to build credit and savings at the same time. You make small payments, usually over six to 24 months. With some of these loans you pay first and receive the money at the end, which helps you avoid taking on debt while you build a payment record. Some nonprofit organizations offer them too.

Authorized-user status. If a family member adds you to their credit card account, that account's history can show up on your own credit report. The CFPB's example is an 18-year-old added to a parent's 20-year-old card: her record almost immediately gets 20 years of account history. Authorized users generally don't take on legal liability for the charges. There are two cautions. The whole history comes along, so it only helps if the account is in good shape. And the CFPB notes that newer versions of some scoring models, FICO among them, give authorized-user accounts less weight than an account in your own name.

The habits that do most of the work

Opening the account is the easy part. What you do with it afterward is what builds the history.

Pay on time, every time. The CFPB says missed bill payments may hurt your scores because they can establish a poor payment history. Automatic payments or phone reminders make this a lot less stressful.

Keep balances low. Scoring models look at how close you are to being maxed out. The CFPB passes along the advice from experts to use no more than 30 percent of your credit limit. Say your secured card has a $300 limit. One $90 grocery run already uses 30 percent of it. With small limits, that math arrives fast.

Pay the balance in full when you can. You'll hear that you need to carry a balance to build credit. You don't. The CFPB says paying off the whole balance is best, and carrying one just means you pay interest.

Apply only for what you need. A bunch of applications in a short stretch may look to lenders like your situation has changed for the worse, according to the CFPB. One good account beats three squeezed in at once.

Look at your own reports. The CFPB says requesting your free annual credit reports won't affect your score. Our guide to reading your credit report shows what to look for, and it's how you'll confirm your new account is showing up.

None of this moves your scores right away. The CFPB is upfront about that: it takes time, so keep going.

A simple starter plan

If your reports already carry old problems, the timing matters too. Our guide to how long negative items stay explains what the limits are.

Building credit with an ITIN

If you file taxes with an Individual Taxpayer Identification Number instead of a Social Security number, you might wonder whether any of this applies to you. It can. It just takes a bit more homework.

The IRS describes an ITIN as a nine-digit number it issues if you need a taxpayer identification number for federal tax purposes but aren't eligible for a Social Security number. The IRS is also clear about what an ITIN doesn't do: it doesn't provide or change immigration status, it doesn't authorize you to work in the U.S., and it doesn't serve as identification outside the federal tax system.

Whether an ITIN gets you credit is up to each lender. Experian's guidance says some major card issuers accept an ITIN in place of an SSN, while others still require an SSN, and even with an ITIN you have to meet the issuer's other requirements, such as income. Experian also notes that secured cards can be easier to qualify for, since they require a deposit.

There's one practical point in your favor. Experian says that if you open an account without an SSN and the lender reports to Experian, the account should still appear on your credit report, because Experian matches information using all of the identification the lender provides, not the SSN alone. Using your name and address the same way on every application helps that matching work.

What we can't tell you is which lender will say yes. Policies differ, they change, and nobody can promise approval. A reasonable first move is to ask your own bank or a local credit union what they accept, and to ask directly whether the product reports to all three bureaus.

Patience, and where to go from here

A credit history is built from months of ordinary behavior, not one clever move. Get one account that reports, pay it on time, keep the balance low, and let it age.

If you own a business or plan to, keep in mind that personal and business credit are separate files with different rules. Our guide to personal vs business credit explains the difference.

And if you'd like a second pair of eyes on where you're starting from, Gold Star Credit offers a free consultation. You can book a time whenever it suits you.