It’s easy to find information about fixing bad credit, but a lot harder to find tips for building credit up from nothing.
It’s a more common situation than you might think. In fact, one in ten adults in the U.S. have no credit score, due to a missing or spotty credit history.
Who lacks credit?
Plenty of young people who are just starting to manage their own finances may lack a credit score. About two thirds of 18 and 19 year-old Americans have no credit history, according to the Consumer Financial Protection Bureau, a federal agency that ensures fair treatment by the financial industry.
Many new immigrants to the U.S. also lack a relevant credit history, as credit information generally isn’t transferrable across borders. The ranks of those without credit also include older people who simply never needed to open a credit card, or take out a loan.
Credit History vs. Credit Score
In case you were wondering about the difference, your credit history is the sum of all the transactions that have been reported to credit bureaus in your name over the years; these are all recorded in your credit report.
In contrast, your credit score is a grade given out by credit bureaus based on your credit history, which lenders can then use to judge your creditworthiness. The score is typically a three-digit number between 300 to 850.
Anything over 700 generally means you have good credit and are a low credit risk.
Why You Need to Develop a Credit History
Having a credit history is crucial, because without one you’re likely to have trouble getting a mortgage, qualifying for a car loan, or applying for a credit card. You may even have trouble renting an apartment, as many landlords use credit scores to determine whether prospective tenants will pay their rent on time.
It can be scary to take on debt for the first time, especially because we’re taught that debt is a sign that of spending beyond one’s means. Or you may have seen friends and relatives take on so much debt that they end up drowning in interest payments.
But if your main goal is to build credit, you don’t have to take on a lot of debt—in some cases, less than a hundred dollars may be all you need.
Here are four ways to start building credit from zero, without putting your financial life in danger:
Open a secured credit card. If you have a few hundred dollars handy, this is one of the easiest ways to start building credit. This type of credit card is secured by a small deposit, usually $200 to $800. Since the credit limit on the card is only be as big as the deposit, the bank knows its losses will be covered if you don’t pay up. Once you’ve built up enough credit to get a normal card, you can cancel the secured card and get your deposit back, simple as that.
Quick note: A secured card is not the same thing as a debit card, which is basically a card linked to your checking account, and doesn’t help you build credit.
Piggyback on someone else’s credit. It’s not uncommon for parents who have good credit to co-sign first credit cards for their adult children. By doing this, the parent is guaranteeing the loan and the bank can feel more confident that it’ll be repaid. Similarly, if you’ve immigrated to the U.S. to marry an American citizen, you can ask to be made an authorized user on your spouse’s existing credit cards; this will help you build your own credit while they build theirs.
Open a gas card or other retail credit card. Credit cards issued by retail stores often have lower credit limits than standard credit cards, which means issuers are generally more willing to take a risk on people with bad credit scores or no credit scores at all. A gas card is an especially good choice if you drive regularly, since you’ll be charging to the card.
Be sure to choose a gas station brand that’s convenient to where you live so you’ll be able to use the card, and aim for a card with rewards, like a dollars back on gas for every dollar you spend
Open a credit card specifically targeted to people new to the U.S. Many people without credit scores aren’t actually much of a credit risk, and more companies are popping up every day to target them with financial services.
One such company is SelfScore, which offers a specialized card for international college students. The application doesn’t require cardholders to have a credit history —instead, it looks at each applicant’s current income, as well as his or her earning potential.
Watch Out for These Credit Pitfalls
While these are generally safe ways to take on debt and build a credit history, there are still a few things to watch out for.
High interest rates. Many credit cards available to people lacking a credit history carry interest rates much higher than the average annual percentage rate (APR) of 12% to 13%. SelfScore has an APR of 19.24%, while some gas cards have APRs of as much as 25%. So avoid carrying a balance on these cards if you can.
Credit dings. Never apply for multiple cards at once, since every time a lender runs a credit check it dings a few points off of your credit score.
Maxing out. Also, while you should use your card regularly, avoid maxing it out—that is, charging so much to the card that you reach the credit limit and can’t charge any more. To avoid damage to your new credit score, experts recommend using no more than 30% of your total limit, even if that means charging less than a few hundred dollars a month.
The most important tip of all, though, is to start the process sooner rather than later. Building up credit takes time. Fifteen percent of your credit score is based on the length of your payment history, which means you can’t achieve a perfect credit score of 850 just by making a few payments.
However, if you use your card correctly, you should have a decent credit score after six months. Whether your end goal is to rent your next apartment or to get an affordable mortgage for your first home, it’s a good idea to start thinking about building credit now now. Your future self will thank you.
Nathalie Lagerfeld is a writer and editor based in Chicago.