how to establish credit

How to Establish Credit

Posted 26 October 2016 12:00 AM by J.D. Byrider

You’ve heard the phrase “It takes money to make money.” Well, that’s pretty much the rule with credit, too. If you want to get a loan, most lenders will turn you away if you don’t have a solid credit history. But how can you have a credit history if no one will give you a loan? It’s a frustrating situation, but there are some ways to build your credit.

About Credit Scores

A credit score is a number that lenders look at to decide whether a person is a good credit risk. Each of the three major credit bureaus – Experian, Equifax and TransUnion – may assign different credit scores, and other firms assign credit scores, too.

According to Credit Karma, many lenders use their own formulas to decide if someone is a good credit risk, and those formulas are unknown. Factors that are important to one lender may not matter to another lender. So, instead of focusing on your credit score, you can build your financial reputation through other means.

Timely Rent Payments

Experian RentBureau collects rent payment data from property management companies and rent payment services. If you’re a renter, ask your landlord if he or she reports timely rent payments to Experian.

If your landlord doesn’t report to Experian, you could sign up for an electronic rent payment service that reports payments to Experian: PayLease, PayYourRent, RentTrack or ClearNow. Some of those services may charge a fee, but the expense may be worth it, if it helps you build your credit history.

The Value of Steady Employment

Lenders may look at your employment background to determine whether you’d be able to repay a debt. A record of steady employment paints a more favorable picture than a history of multiple jobs, with periods of unemployment in between. As you work to build your credit, avoid quitting your job – or at least make sure you have another job waiting for you before turning in your notice.

Put Utilities in Your Name

If utility bills are in your name, and you pay your bills on time, you may be able to improve your chances of getting a bank loan. Utility providers don’t report timely payments to credit agencies, according to Experian, but they may send past-due accounts to collection agencies that report unpaid bills to credit bureaus. Keep track of your bill payment history, because it could help you prove to banks your record of timely payments.

improve credit by paying bills on time 

Get a Retail Credit Card

Many major retailers offer store credit cards that have high interest rates and low maximum spending limits. People with no credit history may be able to qualify for these cards and build their credit by charging small purchases and paying the balance in full every month.

A word of caution, though: According to financial advice website NerdWallet, consumers should use no more than 30 percent of their available credit. So, for a card with a limit of $200, charging more than $60 could actually hurt your credit. And anytime you apply for credit, lenders perform a “hard inquiry” on your credit report. Too many hard inquiries can lower your credit score, and even a single hard inquiry could lower your credit score for a short amount of time.

Apply for an Auto Loan

Even when you have no credit history, you may be able to qualify for a car loan. Most lenders offer several interest rates for car loans, and a person with no credit history may have to pay a higher interest rate than someone who has established credit. But when you finance the purchase of your car and make your loan payments on time, you can begin building the type of credit that, in the future, could help you qualify for better interest rates.

If you do choose to apply for an auto loan, think about what you can afford to pay monthly for your car. In addition to loan payments, make sure you can afford license plates, insurance and gas. You’ll also need to pay for regular maintenance, to keep your car running smoothly.

Ready to learn more about understanding your credit, how credit scores are calculated, how to improve your credit, how credit bureaus work and a whole lot more about credit? Check out our Credit 101 guide written by our nationally recognized expert on credit, John Ulzheimer here in our ultimate guide to understanding credit.



Understanding Credit Score Differences. (2016, Oct. 19). Retrieved from Credit Karma:

Build Credit History By Paying Your Rent on Time (n.d.). Retrieved from Experian:

Utility Payments and Your Credit Report. (2015, March 13). Retrieved from Experian:


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