How to Build Credit from Scratch

Starting your credit journey might feel like trying to get a job without experience—everyone wants to see a history before they'll give you a chance. The good news? You have more options than you might think. Building credit doesn't have to take years of waiting or come with costly mistakes.

Understanding Credit Scores: The Basics
Your credit score ranges from 300 to 850, with most lenders considering anything above 670 as good credit. When you're building credit from scratch, you typically won't see a score for the first six months after opening your first account. After that initial period, scores around 650-700 are achievable with consistent, responsible habits.

Five factors determine your credit score:

1. Payment history (35%) - Your record of making payments on time
2. Credit utilization (30%) - How much of your credit limits you are using
3. Length of credit history (15%) - How long you've had credit accounts open
4. Credit mix (10%) - How many different types of credit accounts you are using
5. New credit inquiries (10%) - How many credit inquires you have resulting from recent applications

Learn more about the basics of credit scores

Start With Making a Budget
Before diving into credit building tips for beginners, you need a budget that tracks your monthly income and prevents common budget problems. Young adults often have income that changes from month to month, which makes budgeting even more important. Creating a good budget can help avoid using credit when you aren’t in a position to pay it back on time.

Start by adding up your monthly income after taxes. If your income changes, use your lowest monthly amount. Try using the 50/30/20 rule for allocating your spending: 50% for needs, 30% for wants, and 20% for savings.

Build Your Emergency Fund
Your emergency fund may help you avoid using credit cards during unexpected situations like car repairs, medical bills, or job loss. Financial experts recommend starting with at least $500, which covers most small emergencies and repairs. Then, saving three months of basic expenses is usually enough.

Steps to build your emergency fund:

1. Open a separate high-yield savings account
2. Set up automatic transfers of $25–50 per paycheck
3. Save extra income like tax refunds, birthday money, or work bonuses
4. Gradually increase contributions as your income grows
5. Keep funds easily accessible but separate from daily spending money

Your First Credit Account
Building your credit from scratch starts with choosing the right type of credit. Several options work well for those with no credit history:

Secured Credit Cards
Secured credit cards are designed to help you build or repair credit. They don’t require any credit history; instead, they require a cash deposit that becomes the credit limit (usually up to a certain amount). The account is used to make purchases and pay bills like a standard credit card account. Making on time payments creates a good payment history (35% of your credit score) and helps build a good credit score.

Our Share-Secured Visa^® also offers no annual fee and free access to your FICO score (credit score) and we report monthly to all three credit bureaus so your on-time payments work towards establishing your credit.

Student Credit Cards
If you're enrolled in college, student credit cards offer another pathway that doesn’t require a cash deposit. These cards typically have:

1. Lower credit limits (typically $500–$1,500)
2. More lenient approval requirements
3. Educational resources about credit management
4. Potential for graduation to regular cards

Credit Builder Loans
Some credit unions and community banks offer credit builder loans specifically designed to help people build credit.

Here is how most credit building loans work:

1. You put up a portion of your savings as collateral
2. You can borrow up to the amount you put up for collateral
3. You repay the loan in fixed monthly payments over a set period of time
4. The funds held as collateral are either released gradually as payments are made or in full when you pay off the loan.

Features:

• Easier to qualify for than traditional loans
• Requires you to pay a collateral or refundable deposit
• Will report to the credit bureaus
• Typically have lower interest rates than a traditional loan
• If you do not repay the loan, the lender can keep the money you used as collateral

Our Smart Start Loan also helps build credit by reporting to credit bureaus, but doesn’t require collateral funds. It also qualifies you for our Arrowhead Visa^® credit card after 12 on-time monthly payments.

Authorized User Status
Ask a trusted family member with excellent credit to add you as an authorized user. This strategy may jumpstart your credit building, but choose carefully—the activity on the card can positively or negatively affect your credit, depending on how the account owner manages their account. Keep in mind, not all financial institutions report authorized users to the credit bureaus, so it’s good to ask before being added to an account.

Common Budget Mistakes That Derail Credit Building
Some consumers face unique budget challenges that can impact credit building efforts:

Irregular Income
Part-time jobs, seasonal work, and gig economy earnings create unpredictable cash flow. Overcome this by:

1. Basing your budget on your lowest monthly income
2. Saving excess earnings during high-income months
3. Building a larger emergency fund to smooth income gaps
4. Tracking income patterns to predict slow periods

Social Spending Pressure
Friends, parties, and social activities can strain budgets. Manage this by:

1. Setting a specific entertainment budget for yourself
2. Suggesting lower-cost social activities
3. Using cash for optional spending to avoid overspending with a debit or credit card

Lack of Financial Experience
Without experience managing money independently, mistakes may happen. Prevent common errors by:

1. Starting with small credit limits
2. Using budgeting apps to track spending
3. Reviewing statements monthly for accuracy
4. Asking questions when you don't understand something

Monitoring Your Credit Progress
Track your credit building success and watch for positive trends like score increases and increased limits. Routinely monitoring your score also gives you the opportunity to quickly adjust your strategy if your score drops. You can watch your credit build through free monitoring tools:

1. Credit card company apps often provide free credit score
2. Credit union or bank websites frequently offer credit monitoring services (we provide your FICO® Score on your monthly statement)
3. AnnualCreditReport.com provides free annual credit reports from all three bureaus
4. Credit monitoring apps send alerts about changes to your credit

Common Credit Building Questions

How long does it take to build credit from scratch?
Most people see their first credit score after about 6 months of credit account activity. Fifteen percent of your credit score is the length of your credit history, so reaching a good credit score takes time and consistent, responsible credit use.

Can you build credit without a credit card?
Yes, several alternatives exist including credit builder loans, becoming an authorized user, and using rent/utility reporting services. However, credit cards remain the most common and effective method for most people.

What's the fastest way to build credit?
The fastest approach combines multiple strategies: opening a secured credit card, becoming an authorized user on a trusted person's account, and using services that report rent and utility payments to credit bureaus.

Should I close my first credit card once I get a better one?
No, keep your first card open even if you don't use it regularly. Closing accounts reduces your available credit and can shorten your credit history, both of which can lower your score.

How much should I spend on my credit card?
Keep spending below 10% of your credit limit for the best impact on your score. With a $500 limit, stay under $50 in monthly spending if possible.

What happens if I miss a payment on my first credit card?
One missed payment can drop your score by 60–100 points, especially when you're just starting. Contact your card issuer immediately if you realize you've missed a payment—they sometimes waive late fees for first-time mistakes.

Explore Our Credit-Building Options
Ready to start building your credit? I like to recommend our Share-Secured Visa^®, Smart Start Loan, or Shared-Secured Loan as your first step toward building a high credit score. Depending on your needs, each option offers a perfect combination of safety and credit-building power, helping you establish the credit history you need while learning responsible credit management.

If you need assistance in choosing which options are right for you, creating a budget or strategy for building your credit, make an appointment with us! Our team of Financial Coaches are eager to work with you to create a personalized plan to reach your goals and celebrate successes along the way.

Veronica Balderas Financial Coach

About the Author With over 15 years of experience in the financial services industry, Veronica Balderas is a certificated financial coach who helps individuals learn techniques and gain knowledge to manage their finances. She works with members who want to tackle debt, build savings, and create budgets. For the past five years, Veronica has provided members with the tools to create personalized financial plans that align with their goals. She offers information regarding budgeting, savings strategies, and spending plans to help members stay on track for long-term financial stability. Whether you're working to pay off debt, improve your credit score, or navigate a major financial change, Veronica provides practical advice. She focuses on building financial literacy and attacking complex challenges. Her hands-on approach ensures members are able to gain a better understanding of their finances and a clear plan for the future.