How do you build credit from nothing?

You build credit by having at least one account that reports on-time payments to the credit bureaus, then giving it time. A secured card with one small bill on it, paid in full each month, is the simplest start.

Scores need reported history

A credit score is calculated from your credit reports. If no lender reports an account for you, there is nothing to score. Your first job is to get one account reporting on-time payments.

FICO generally needs about 6 months

To produce a FICO score, you generally need at least one account open for 6 months or more and at least one account reported in the past 6 months. Some other scoring models can score you with a shorter history.

Four common ways to start

A secured credit card, a credit-builder loan, being added as an authorized user on someone else's card, and having rent or utility payments reported. Each works best when the account reports to all three national bureaus.

Building credit should cost little or nothing

Pay your card statement in full each month and you pay no interest. Watch for annual fees and monthly fees, which can make a builder product cost more than it is worth.

Secured credit cards

A secured card works like a normal credit card, but you put down a cash deposit first. The deposit usually sets your credit limit, so a $300 deposit often means a $300 limit. The lender keeps the deposit if you stop paying, which is why they will approve people with no history.

Use it for one small bill and pay the statement in full each month. Some issuers review the account after several months of on-time payments and may move you to a regular card and return your deposit. Compare fees before you apply. A card with no annual fee is usually the better choice.

Credit-builder loans

A credit-builder loan flips a normal loan around. The lender puts the loan amount in a locked savings account, and you make fixed monthly payments. When the loan is paid off, you get the money, sometimes with a little interest.

These are often offered by credit unions and community banks. Each on-time payment is reported, so you build a payment record and savings at the same time. Only take one if the monthly payment fits your budget easily, because a late payment hurts your record instead of helping it.

Becoming an authorized user

A parent, partner or friend can add you to one of their credit cards as an authorized user. Many issuers then report that card's history on your credit report too. You don't need to use the card or even hold it to benefit.

This only helps if the main cardholder pays on time and keeps the balance low. Their late payments or high balance can show up on your report as well. Ask the issuer whether it reports authorized users before you count on this method.

Rent, utility and phone payments

Rent, utilities and phone bills usually don't appear on your credit report, even when you pay them on time for years. Some landlords and rent payment services will report your rent to one or more bureaus, sometimes for a fee. Some bureaus also offer free opt-in programs that add utility and phone payments to the report they keep.

These can help, but with limits. Only some scoring models count this data, and it may appear at only one bureau. Treat it as a bonus on top of a card or loan, not a replacement.

What the first year looks like

In month 1 you open one account and set up autopay. Over the next few months the account reports each statement. Around month 6, a FICO score can generally appear, though it will be based on a thin file.

From there, time does the work. Keep paying in full, keep balances low compared with your limit, and avoid applying for several new accounts at once. Each application can add a hard inquiry, and a cluster of new accounts can look risky to lenders.