Credit Score Series - Part 3: Building Credit from Scratch
- 4 days ago
- 6 min read
Part three of the FinanciFI Credit Score Series dives into one of the most common challenges- how to start building credit when you don’t have any yet. Whether you’re new to credit or starting over, these practical steps will help you establish a strong foundation. (If you’re catching up, check out the previous articles:
How to Start When You Have No Credit History
If you’ve ever tried to apply for a credit card, car loan, or apartment lease with no credit history, you’ve probably hit a frustrating wall. It feels like a Catch-22: you need credit to get approved for credit, but you can’t get credit because you don’t have any history yet.
The good news is that there are smart, intentional ways to start building your credit - even from a completely blank slate. Whether you’re a teenager, a young adult, or someone starting over after a financial reset, you can absolutely build a strong credit history from scratch.
Why Credit History Matters
Lenders, landlords, and even insurance companies use your credit report to gauge how reliable you are with money. Without any credit history, they have no proof of your habits- so they’re less likely to approve you or might charge higher rates “just in case” you don’t repay on time.
Fortunately, building a credit history doesn’t have to be complicated. And you don’t have to go into a lot of debt to do it. It just takes a few smart decisions, consistent payments, and time. While I’ve listed them as separate options, you can choose to use a combination if multiple options fit your lifestyle and financial plan.
Option 1: Become an Authorized User
One of the easiest ways to start is to be added as an authorized user on someone else’s credit card- often a parent, spouse, or trusted family member.
Here’s how it works:
The primary cardholder adds you to their existing account.
The card’s full history (including payment record and age of the account) may then be reported on your credit file.
You benefit from their responsible use without being legally responsible for paying the bill.
However, this only helps if:
The primary cardholder consistently makes on-time payments,
The credit card company reports authorized users to the credit bureaus (not all do), AND
The card maintains a healthy utilization ratio (ideally 10–30%; see previous article for more information on this).
If all three statements are true, this method can give you an instant boost in credit history length and positive payment data.
💡 FinanciFI Tip: This is how my husband and I manage our credit cards. He has the higher and more consistent income, so most of our loans and credit cards are in his name. I’m listed as an authorized user on the credit cards, so my credit report also benefits from our consistent, on-time payments.
Option 2: Open a Secured Credit Card
If you’d rather build credit independently, a secured credit card is a fantastic tool.
A secured card works just like a regular credit card, but you make a refundable deposit when you open the account. That deposit becomes your credit limit and serves as collateral for the bank in case you miss payments. Oof, that’s a lot of jargon.
Here’s an example:
You deposit $1,000 → your credit limit is $1,000.
You use it to make small, regular purchases (like gas or groceries).
You pay the balance in full and on time every month. If you don’t, the bank will use some of the $1,000 deposit to pay the balance and/or late fees.
After about six months of responsible use, you’ll have a FICO® Score and a positive credit history. Some lenders will even upgrade you to an unsecured (regular) card and refund your deposit. Or, when you no longer need the secured card, you can close the account and receive your deposit back.
Be careful, though: if you miss payments, the lender can keep your deposit and report late payments or charge-offs to the credit bureaus- hurting the very credit you’re trying to build.
Banks are willing to offer secured credit cards to borrowers with poor or no credit history because there’s very little risk of non-payment. Since you’ve already made a deposit (the collateral), if you don’t pay a bill on time, they can use some of your deposit to pay the outstanding balance. This is what makes it a “secured” card- a “secured” debt means the bank has something of value to take if you don’t pay the debt as agreed. Examples of other secured debts are mortgages (banks can “foreclose” on a house) and car loans (banks can “repossess” the car).
💡 FinanciFI Tip: Start small. Use your secured card for one recurring expense (such as a utility bill) and pay it off monthly with automated payments. This builds a pattern of on-time payments without you being tempted to overspend.
Option 3: Get a Co-Signer for a Loan
If you can’t qualify for a loan on your own, a trusted co-signer can bridge the gap. A co-signer shares legal responsibility for the debt and allows you to qualify for better rates based on their credit profile.
For example, a young adult might take out a small car loan with a parent co-signing. As long as the payments are made on time, this builds the borrower’s credit history while minimizing risk to the lender.
A few things to remember:
Co-signers are equally responsible for repayment, even if you’re the only one using the loan.
Missed payments will hurt both borrowers’ credit scores.
Clear communication and trust are essential.
⚠️ For Co-Signers: Never co-sign a loan unless you’re financially and emotionally prepared to pay 100% of it yourself if necessary. If the person you’re trying to help defaults on the loan, it can be damaging to your own credit history as well as the personal relationship between the two of you, so co-sign with caution.
💡 FinanciFI Tip: This is how I started my own credit history- my dad co-signed my first credit card when I was 16. Between us, I was fully responsible for every charge, but legally, he would have been financially responsible if I didn’t make the payments.
Option 4: Student Loans as a First Credit Line
Federal student loans are one of the few types of credit available to borrowers with no prior history. That makes them an excellent entry point for college students.
Federal loans don’t require a credit check or co-signer.
Private lenders often have options for students with limited credit history. (However, private loans typically have higher interest rates or less favorable terms and repayment options than federal loans.)
Payments usually don’t start until about six months after graduation.
This gives students time to establish credit history without worrying about immediate repayment. Responsible management after graduation- making every payment on time- can turn that loan into a valuable credit-building tool.
💡 FinanciFI Tip: If you have student loans, consider setting up automatic payments after graduation. Many lenders even offer a small interest rate reduction for using autopay.
Option 5: Alternative Ways to Build Credit
Not everyone can- or wants to- start with credit cards or loans. Fortunately, there are a few less traditional ways to establish credit history.
1. Rent Reporting Services
Some property management companies and online tools (like RentReporters (for a fee) or Experian Boost) can report your rent payments to credit bureaus. Since rent is often one of your biggest monthly expenses, this can add positive payment history to your report.
2. Utility Payments
Similarly, some utilities or cell phone providers report payments to credit bureaus. While not as common, this can help you establish consistent on-time payment records. (Experian Boost works for utility payments as well).
3. Credit Builder Loans
Credit unions and some community banks offer small “credit builder loans.” The bank essentially holds your payments in a savings account until you’ve made all the payments and then releases the funds back to you. You build credit while saving money- win-win.
How Long Until You Have a Credit Score?
VantageScores can be calculated with as little as 1-2 months credit history, but it takes at least six months of reported account activity for your first FICO® Score to appear. From there, your credit report (and score) will evolve as you add accounts, lengthen your history, and maintain good habits.
Building Credit from Scratch Takes Patience - But It’s Worth It
Creating a strong credit history doesn’t happen overnight, but small, consistent actions add up quickly.
Remember:
Make every payment on time.
Keep balances low relative to limits.
Don’t open too many new accounts too fast.
Review your credit reports regularly for accuracy.
If you do those four things, you’ll be amazed how quickly your score climbs into the 700s - and stays there.
Your Next Step: Build Confidence Alongside Your Credit
Understanding your credit score is powerful - but putting that knowledge into action is where real change happens. If you’re ready to stop guessing and start building financial confidence, let’s talk. Schedule a free Q&A Call to learn about how financial coaching can help you achieve your financial goals. Or jump straight into a Discovery Call, and we’ll look at your credit reports together, identify what’s working and what’s not, and make a simple, realistic plan to strengthen your financial foundation- one step at a time.
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