The first time you get a credit card or take out a loan, your credit history begins. Your credit history is what potential creditors and lenders use to determine if you can manage money responsibly. If you've never had credit, you are referred to as credit invisible, meaning you don’t have a credit history.
Don't panic if you are credit invisible — there are strategies you can apply to go from "invisible" to "visible" and start building a credit history. According to the Consumer Financial Protection Bureau, 11% of U.S. adults do not have a credit record. By establishing a credit history with a positive pattern of payments over time, you can become a good candidate for a loan, banking product, and other products and services.
Here are just a few of the steps you can take to build a good credit history.
1. Report Your Rent Payment
Your on-time rent payments can be used to build credit with all three major credit bureaus.
Your landlord may already be automatically reporting to credit bureaus, but not all landlords do. Ask if your landlord is reporting your payments and if not, find out if they can.
Alternatively, you can report the rent payments yourself by paying rent through a rent reporting service. However, rental payment services usually charge a fee, so it’s best if the landlord can report on-time payments on your behalf.
2. Consider Applying for a Secured Credit Card
A secured credit card is designed for people with limited or damaged credit and requires you to deposit funds, known as a security deposit, into a linked account. The bank extends you a credit line matching the amount of the security deposit, and they'll hold on to your security deposit for as long as you have the card.
For those with no credit history or damaged credit, a secured credit card doesn't charge the same high fees as unsecured credit cards, because your security deposit is held as collateral by the card issuer in case you default or don’t make payments.
Many secured cards include a graduation feature that allows you to move from a secured card to a traditional credit card seamlessly after establishing a pattern of consistent payments. Some card issuers may automatically review your account to see if you can upgrade to an unsecured card, but you may have to ask your card issuer whether you are eligible and able to convert.
By transitioning to an unsecured card in this way, you will get your deposit back without negatively affecting your credit by closing an account.
3. Consider Applying for a Store Credit Card
From department stores to gas stations and retail chains, many stores offer credit cards. These cards tend to be easier to qualify for and usually have low credit limits, which makes them a good option if you are credit invisible. However, because store credit cards often have high interest rates, you'll want to make sure to pay off the card in full every month to avoid interest charges.
By making periodic purchases with your store credit card and paying them off immediately, you can build a credit record and get used to managing a credit card.
Building credit takes time, and you'll need to pay close attention to your finances to make sure that you're able to make payments when they're due, which is the most important contributor to your credit score.
To learn more about building credit, use our suite of financial capability and homeownership education resources, CreditSmart®— also available in Spanish. From managing debt to buying a home, you can learn it all at your pace, on your terms. Learn more about CreditSmart.
CreditSmart®: Financial Education on Your Terms
Education has power, and it’s in your hands with the CreditSmart® suite of financial and homeownership education resources. Whether you’re renting a home, are on the path to homeownership or saving for the future, CreditSmart — also available in Spanish — has something for you.Learn more