Zero to 800: The Young Adults Guide to Building Credit from Scratch

A New Credit Card Arrived in the Mail After Being Approved

Building credit from scratch can feel like a Catch-22, needing credit to borrow and to borrow for credit. Nevertheless, obtaining credit without a prior borrowing history is necessary for future investments and vital to your long-term financial health. Whether you want to jump in the deep end with interest rates or dip your toe in the water by reporting payments you're already making, watch your FICO go from 0 to 800 with these 5 easy strategies.

1. Manually Report Rent

If you are paying rent, start reporting it to the credit bureaus. While paying rent in and of itself does not raise your credit score, it can if it's reported. Report it yourself using the new Experian Boost service, which is 100% free to use! Or have your landlord report your rent for you, as many landlords already pay for such services.

2. Become an Authorized User

If you have a family member or trusted friend willing to help you build credit, ask to be added onto one of their current tradelines as an authorized user. For example, if your spouse is consistently making payments on an auto loan, ask that you put your name on the loan as well. This allows for your credit history to benefit from subsequent payments made on the loan. (If they want to remain the car's sole owner, remove yourself from the title once the loan is paid off. The payments made will still reflect positively on your credit history, but they get to keep their car.)

3. Obtain a Department Store Card

Most major department stores offer credit cards, which can also be used to build credit for the first time. One of the biggest benefits of department store credit cards is anyone can easily get one. They report to the credit bureaus and often offer rewards. Just be cautious because similar to typical credit cards, it's easy to run up a balance without realizing it, thus hurting your credit more than helping it.

4. Apply for a Secured Credit Card

Secured credit cards (also called credit-builder debit cards) are easier to get approved for than normal credit cards because they are specifically made to help individuals build credit. You don't need previous credit history to apply. The downside is you have to provide an initial lump sum to the financial institution, which is then used as your line of credit for the remainder of the term. This allows individuals to build credit while financial institutions limit risk.

5. Credit Builder Loans

Credit builder loans are the inverse of a typical loan; you pay the loan payments first and receive the lump sum after the term is up. Again, this allows individuals to begin building credit, while minimizing risk for the financial institution. Nevertheless, you do have to pay interest, which isn't always included when you receive your lump sum back.

It's important to remember that building credit takes time and consistency. Once you have a line of credit started, be sure to stay up-to-date on payments and stay well below your credit limit. This ensures you not only obtain a credit score, but also maintain good standing.