Build credit · Part 1 of 3
Understand what builds credit
Which accounts can add to your credit history?
Start with what is already on your reports
A credit report records accounts and payment history supplied by lenders and other furnishers. A score is calculated from report information; it cannot promise approval.
Check your reports before applying. You may already have a reporting card or loan, or an error to correct. Opening another account is not automatically the next step.
Source: CFPB: What is a credit report?
There is more than one route
A reporting credit card or installment loan can build payment history. Options may include an ordinary card you qualify for, a secured card backed by a cash deposit, a credit-builder loan whose proceeds are held during repayment, or authorized-user status on someone else’s card. Some rent arrangements may also report, but coverage varies.
Cash, debit, and most prepaid cards do not create a borrowing-and-repayment record. Confirm what information reaches which reporting companies before paying for a service or opening an account.
Know what can go wrong
A secured-card deposit locks up cash and does not pay your card bill. A credit-builder loan requires every scheduled payment even though its proceeds are held. Fees and interest can make either choice expensive; missed payments can damage the record you are trying to build.
An authorized-user account depends on the primary cardholder and the issuer’s reporting. Rent reporting may cost money or reach only some reports. Do not borrow or buy extra things solely to create a score.
Check terms before choosing anything
Ask what is reported, to whom, and when. Check deposit requirements, fees, APR, due dates, late-payment rules, and when held money is returned.
Only take on a payment or deposit that leaves essential bills and a cash buffer covered. Waiting and using an account you already have well can be the better choice.