How to build credit from scratch: what the score actually counts
Building credit is less mysterious once you know how the score is calculated. Payment history and how much of your limits you use make up nearly two-thirds of it.
What goes into a FICO score
FICO, whose scores are used in most US lending decisions, publishes the weight of each factor:
Source: myFICO, "What's in my FICO Scores?".
- Payment history (35%) – whether you pay on time. Late payments, missed payments and accounts in collections weigh the most, especially recent ones.
- Amounts owed (30%) – including how much of your available credit you are using (utilisation).
- Length of credit history (15%) – how long your accounts have been open.
- New credit (10%) and credit mix (10%) – recent applications, and the variety of accounts.
Getting a score in the first place
To be scored at all, FICO generally needs at least one account open for six months or more and at least one account reported to a credit bureau in the last six months. If you have no history, these are the usual starting points:
| Option | How it works | Watch out for |
|---|---|---|
| Secured credit card | You put down a deposit that becomes your limit; the card reports like a normal one. | Annual fees; check that it reports to all three bureaus. |
| Credit-builder loan | Offered by some credit unions and banks: you repay a small loan held in an account, then receive the money. | Interest and fees; only useful if repaid on time. |
| Authorised user | Someone with good credit adds you to their card. | Their late payments can affect you too. |
The habits that move the score
- Automate at least the minimum payment on every account, so a busy month never becomes a late payment.
- Keep balances low compared with your limits. Paying the card off before the statement date keeps reported utilisation down.
- Keep your oldest account open if it costs nothing; it anchors the length of your history.
- Check your reports. Free reports from Equifax, Experian and TransUnion are available every week at AnnualCreditReport.com. The Consumer Financial Protection Bureau recommends checking at least once a year for errors, and checking your own report does not lower your score.
