Here’s how to build credit from scratch

Your credit score is the number that banks, credit card issuers, auto loan issuers, and insurance companies use when making lending decisions: whether or not to loan you money and how much interest they’ll charge. If you have a low credit score (or no credit score), banks might consider you “risky,” and charge you higher interest rates, or deny your application for credit. Even if you don’t plan on buying a car or a home for a while, your credit score still matters: Landlords often look at this number before renting out an apartment.

Most credit scores range from 300 to 850. Depending on the individual lender or insurer, you may see different standards, but generally a credit score above 800 is considered excellent; “very good” credit scores range from 740 to 799; a “good” score ranges from 670 to 739; and 580–669 is considered “fair.” Any score below 580 is considered poor.

There are five factors that affect your credit score:

1. Payment history: This accounts for the largest chunk of the credit score (35%) and includes your track record of making payments on time, late payments (and how many days late they were), and bankruptcy. 

2. Accounts owed: This is the second largest part of the credit score (30%) and has to do with how much money you currently owe on your credit cards and loans relative to your available credit. 

3. Average age of credit: The age of your credit accounts for 15% of your credit score. The longer you’ve had a credit card, the better your score will be. 

4. New credit: This makes up 10% of your credit score and refers to any recent checks on your credit report. If you apply for a lot of different credit cards and loans, that can look risky to banks.

Credit mix: The final 10% of your credit score is determined by types of credit accounts: revolving and installment. Having a mix of both revolving and installment credit looks best to lenders. 

Building credit is a process that can take years. The good news? The steps to getting there are simple and straightforward—you just need to get started.

1. Apply for a credit card. For your first card, look for an entry-level card with no annual fee. If you don’t qualify for most credit cards, look into secured credit cards, which are backed by a deposit.

2. Get a credit card through your parents. This isn’t an option for everyone, but if you can become an authorized user on a parent’s, partner’s, relative’s, or guardian’s credit card account, it can seriously boost your credit, with little effort on your part. The longer they’ve had the account and the higher the credit limit, the better. You don’t actually have to use the card to reap the benefits, making this the easiest way to build credit from scratch.

3. Set up autopay. On-time payments account for the biggest portion of your credit score. The easiest way to make sure you never, ever miss a monthly payment is to set up autopay. If your credit card issuer doesn’t have the autopay feature, set an alarm or write it in your calendar (or both!)—just find a way to pay your bill the same time every month. The same goes for loans and bills. Just remember to check your statement for any errors before you make the payment.

4. Keep your utilization low. Don’t ever spend more than 30% of your credit limit if you can help it. This can be hard when you’re just starting out—what if your credit limit is only $500? You shouldn’t spend more than $150 on that account. If your credit limit is too low for your needs, ask for an increase.

5. Ask for a higher credit limit. Even if you’re already spending below your credit limit, a higher limit is one of the easiest ways to boost your credit score since it will instantly lower your utilization.

6. Take out a loan. Taking out a student loan or car loan is one way to build credit without a credit card. If you’re worried you might not be able to qualify for the loan you want, ask a trusted adult to be your cosigner. (And make sure you both understand that your cosigner could be held responsible if you don’t pay your loan.) If you don’t qualify for most loans, and you don’t have the option of a cosigner, look into secured loans, or credit builder loans, which require an up-front deposit and are designed to help build credit.

7. Apply for credit slowly and cautiously. Every time you apply for a line of credit, the lender will look at your credit report, which is called a hard inquiry. This can negatively impact your credit, so don’t apply for credit that you don’t actually want, or that you think you’ll be rejected for. When it comes to credit cards, wait at least one year after opening one account to open the next one.

8. Create an emergency fund. Your credit score might not reflect how much money you have in the bank, but an emergency fund can prevent you from carrying a balance on your credit card in the face of an unexpected cost, which will, in turn, lead to better credit.

9. Ask your landlord and utilities companies to report your payments. If you always pay your rent and utilities on time, that should count toward your credit history, right? Typically, it doesn’t factor in, but you can ask your landlord and utilities companies to start sending this information to the major credit bureaus, and it might help boost your credit score.

10. Protect against fraud. Fraud can seriously mess up your credit, so make sure to review your bank account and credit card statements in addition to your credit report. Keep your passwords, PINs, and physical cards safe, and shred documents with identifying information.

To have a FICO score, the most popular type of credit score, you need to have at least 6 months of data. That means that if you’re starting from scratch, it may take half a year to see your progress. If you’re working with an existing credit score, expect to see changes every 30 to 60 days. Sign up for a credit score—tracking service to keep close tabs on your progress.

To focus on building credit, you may need to adjust your personal budget. Rent is one of the easiest fixed expenses to dial down by coliving—that is, living with roommates. Bungalow offers affordable private rooms in shared homes in 10 cities nationwide.  Bungalow rooms are less expensive than solo living options like studio apartments, and our homes come with furnished common spaces and stocked kitchens, reducing your move-in cost. Find a Bungalow near you.