How to Build Credit History from Scratch in the US: A Step-by-Step Plan

What does “no credit history” mean?

Credit history is a record of how you borrow money and pay it back. It is collected by the three credit bureaus, the private companies Experian, Equifax and TransUnion. Banks report your cards and loans to them every month.

If no bank has ever reported anything about you, the bureaus have nothing to show. In America, people like this are called “credit invisible.” There is also an in-between case, a “thin file”: the report has one or two new accounts, and there is not much data yet.

The key point: no history does not mean bad history. Nobody thinks you are unreliable. They just can’t evaluate you. That is why banks turn down even people with good salaries: your income does not show up in your credit report.

If you just moved here and are still sorting out your documents, SSN or ITIN, start with our first-year plan for immigrants with no credit history. This article is a general plan for anyone who already has an SSN.

When will your first credit score appear?

A credit score is a three-digit number from 300 to 850. The higher it is, the more willing a bank is to lend to you. Viktor’s score is not 300 and not zero. He simply does not have one. For a score to appear, there has to be data on at least one credit account.

Free apps like Credit Karma show VantageScore, so a score can show up there within a month or two. Meanwhile, a bank that checks FICO still sees “no score.” Many banks make their decisions based on FICO. So for the first six months, you will just have to be patient.

Step 1: a bank account and a report check

To start, open a regular checking account. A big bank or a credit union will work. A credit union is a cooperative bank that accepts people who live in a certain area or work for a certain company. The account by itself does not build credit history: the bureaus do not see your debit transactions.

But you need the account for two reasons. First, the bank where your paycheck goes is more likely to approve you for its first card. Second, it is convenient to set up autopay for your future card from this account.

While you are at it, check what the bureaus already know about you: sometimes there is a record there even though you never opened anything yourself. Credit monitoring services show all three reports at once: SmartCredit, IdentityIQ or MyScoreIQ.

At Excalibur Credit Solutions, when we review an “empty” report like this, the first thing we look at is your personal information: your name, addresses and date of birth. It is better to fix an error there before your first application, not after a denial.

Step 2: which first credit tool should you choose?

Now you need your first credit account that will show up at the bureaus. Banks have options for beginners where the bank itself takes almost no risk. Here are the four main ones:

• Secured card: a credit card backed by a deposit. You put down a deposit, for example $300, and get a card with the same limit. The bureaus see it as a regular credit card. More details are in our article about secured cards.
• Starter card: a card with no deposit and a small limit, usually a few hundred dollars. Your chances are better at the bank where your paycheck already goes. How to choose one is covered in our article about your first credit card in the US.
• Authorized user: a relative adds you to their card. The card’s history usually shows up in your report, while the relative keeps paying the bill. All the details are in our article about authorized users.
• Credit builder loan: a loan designed to build credit history. It works “in reverse”: the bank puts an amount, for example $600, into a locked account. You pay a little over $50 a month for 12 months, and at the end you get the money. Your report shows a loan with steady payments.

For most people with an SSN, the simplest start is one credit card: secured or starter. If a relative has an old card with a clean history, ask them to add you to it, in addition to your own card. We compare all the options with numbers in our guide to starting your credit history.

You can add rent and phone bills to your report through special services. For example, through Experian Boost, but only to your Experian report. It is a plus, but it does not replace a credit account.

Step 3: how should you use your card so your history grows?

Opening a card is only half the job. After that, everything depends on how you use it. Once a month, the bank creates a statement: a summary with your balance on a specific day. That balance is usually what gets reported to the bureaus.

1. Put 1–2 small regular expenses on the card: a subscription, your phone bill, gas. $20–$50 a month is enough.
2. Watch your utilization, the share of your limit in use on the statement date. Below 30% is good, below 10% is excellent. With a $500 limit, keep no more than $50 on the card.
3. Set up autopay for the full statement balance. That way you pay no interest, and you won’t forget a payment.
4. Don’t let the card sit unused. If you don’t use it for months, the bank may close it, and your history will stop growing.
5. Check your report once a month. The account should show up at the bureaus, ideally at all three.

Excalibur Credit Solutions managers often see the same story. A person opened a card and did everything right, but forgot a payment in the month they moved. A year later, they wonder why their score is not growing. Autopay solves this problem in advance.

Step 4: when should you open a second account?

Once your first card is 6–12 months old with no late payments, you can add a second credit account. The bureaus will have more data on you, and your total limit will grow. Here are the options:

• Ask your bank whether you can turn your secured card into a regular one and get your deposit back. Some banks review these cards on their own, usually no sooner than six months in.
• Apply for a second card with no deposit. It is best to apply where you already have your checking account and first card: that bank has seen how you pay.
• If you only have cards so far, you can add a different type of loan, for example a credit builder loan. Credit scores like variety: cards plus a loan with fixed payments.

Before you apply, look for pre-qualification on the bank’s website, a preliminary check of your chances. This check is a soft inquiry, and it does not change your score. A real application is a hard inquiry: the bank pulls your report because you are asking for credit. Your score drops a little because of it. The inquiry stays on your report for two years, and FICO counts it for the first 12 months.

What should you avoid when building credit from scratch?

• Don’t send five applications at once. Every application is a hard inquiry. When you have no history, a batch of inquiries in a row looks like a desperate search for money. And all those inquiries will stay on your report.
• Don’t take on a loan you can’t handle. A $40,000 car loan just to get “quick history” is a bad idea if the payment eats up a third of your paycheck.
• Don’t close your first card. It is your oldest account, and it sets the age of your entire history.
• Don’t max out your card. Even if you pay in full, a high balance on the statement date pulls your score down.

How to build credit history from scratch: a 12-month plan

The timing is approximate, and results vary.