How to Establish Credit

To establish credit, you need to get information about your borrowing and payment habits reported to the credit bureaus, which will create a credit report in your name. The easiest way to do this is to get a secured credit card or a credit-builder loan and consistently make on-time payments on the account.

If you already have a loan or a credit card — either in your name or as an authorized user — your credit should already be established. You can see for yourself by checking your latest credit score and credit report for free here on WalletHub.

If your credit isn’t established yet, just follow the steps below to get started on the path to a good credit score.

1. See if You Have a Credit Report 

The mere presence of a credit report in your name means you’ve already established credit. Perhaps you are or were previously an authorized user on a family member’s credit card account, for example. However, it could also mean that you have been a victim of identity theft or have a collections account in your name.

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You can learn the specifics of your situation by signing up with WalletHub. Should you find a report tied to your Social Security number, carefully review its contents and dispute any errors or fraudulent accounts that you come across. You can also ask the credit bureau to remove negative records from a card on which you were an authorized user. As an authorized user, you are not responsible for any misuse of the account.

2. Open a Starter Credit Card

Credit cards are the best credit-building tools at our disposal. They are generally easy to get, and they all report information to the major credit bureaus on a monthly basis. As long as this information reflects responsible use (especially when it comes to on-time payments), you will not only establish credit but also begin to build a very solid track record.

Your top priority at this point should be to find a card that you can get approved for and does not charge an annual fee. This will help you establish credit faster, avoid unnecessary hard inquiries and save as much money as possible.

When choosing a starter credit card, you have three main options:

If you don’t trust yourself with credit cards, you can still build credit even if you don’t make any purchases. Just pay any membership fees and lock the card away in a drawer, unused. The credit card company will report to the credit bureaus that your account is in good standing, which generates positive information that is added to your credit report.

That’s one advantage of using a credit card to build credit. On the other hand, any loan will require you to go into debt before you build credit.

3. Get a Credit-Builder Loan

Some people may be reluctant to open a credit card due to fears of overspending. If that’s the case, a credit-builder loan is a decent alternative. A credit-builder loan is a type of loan that can help you establish credit without any risk to the lender. With a credit-builder loan, you will make monthly payments, but you won’t have any access to the funds until the loan is paid off.

Just having the credit-builder loan in your name and making monthly payments will give the credit bureaus enough information for you to establish credit.

4. Report Your Rent and Utility Bills to the Credit Bureaus 

If you rather not apply for a credit card or get a loan, you can establish credit by reporting your rent and utility bills to the credit bureaus. Rent and utility bills are typically not reported to the credit bureaus, but there are third-party services that will report your payments to the credit bureaus so you can build a credit profile.

WalletHub is one of the best services to use. By signing up for a premium account, you get access to the credit builder feature that allows you to connect your bank account and have your phone, electric, water, and gas bill reported to TransUnion so you can establish a TransUnion credit report and score.

5. Make On-Time Payments for 6+ Months

You can establish credit and get a credit score within a month of getting your first loan or line of credit. However, that score will be based on such limited information that it could easily take a nosedive if you make a mistake early on.

That’s why it is especially important that you make on-time payments and maintain reasonable credit utilization for the first six months or so. As a general rule, you should try to use less than 30% of your spending limit (or less than 10% for the best results). Careful budgeting and setting up automatic monthly payments from a bank account can be quite helpful in meeting these goals.

It’s also worth noting that responsible use of your first credit card can pay off in the form of a higher credit limit down the road. That, too, can help your credit score go up.

6. Check Your Credit Report & Score Often

Checking your credit at this point will tell you whether you’ve successfully established credit or have more work to do. Once your credit report and score become available, you’ll be able to gain a sense of how your initial performance was graded.

Your credit score is one obvious indicator. But credit scores are made up of several parts, and you can gather additional intelligence by reviewing ratings for each component of your score on WalletHub. We’ll tell you exactly what’s holding back your score and how to fix it. That’s important because it will allow you to change course before any problems take too big of a toll.

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7. Continue to Build & Improve Your Credit

Congratulations! You’ve established your credit. Now it’s time to continue working toward lasting excellence and the savings that come with it. So if you’re ready to take things to the next level, check out our guides on how to build credit and how long it will take. After all, what you really want to do is establish good or excellent credit, and you need to build up to that if you want it to last.

If you are planning to apply for a new loan, line of credit, apartment, or job that requires a credit check in the near future, you may also want to explore the various ways that you can improve your credit in the short term. Finally, if you want to learn what not to do, our articles on credit mistakes to avoid and the reasons credit scores can fall should prove enlightening.

Establishing Credit vs. Building Credit

Establishing credit is the first step in creating a credit history and generating a credit score and report, while building credit is the process of improving your credit score over time. You can establish credit as soon as you get a credit card or loan, but building credit is an ongoing process. Building credit involves responsibly using the loan or credit card you obtained to establish credit, so you can improve your credit and qualify for better financial products.

Now that you have established credit, it is time to work on building it up. To get tips on how to do that, check out WalletHub’s guide on how to build credit.

Ask the Experts: Getting Established

It's important to make a good first impression. So to help you start your credit career on the right foot, we posed the following questions to a panel of personal finance experts. See who they are and check out their advice, below.

• Is responsible credit card use the best way to establish credit?
• Is it too hard to get credit without prior borrowing experience? Too easy? Just right?
• What is the best piece of advice you have for someone who wants to establish credit from scratch?
• What is the biggest mistake that people make when first establishing credit history?