How to Build Credit from Scratch

January 8, 2019 by Comerica Bank

Your credit score is among the most important measures of personal financial health. Not only is it a pivotal indicator of the state of your finances and history as a responsible consumer, but credit scores also factor heavily into everything from applying for an auto loan to opening a credit card account. Basic consumer actions and decisions can in many ways hinge on a credit score. A high score may open the way to wealth building and personal finance advancement, while a low one often proves to be a sticky challenge to get over.

Knowing this, young consumers often ask how they can build first-time credit. The situation may seem a bit bleak at first; after all, teenagers don't often have the time or means to build a credit score and thus need to start from scratch. However, taking steps to build credit at this age helps lay the foundation for strong personal credit down the road.

There are many factors that relate to credit scores and building your credit profile: interest rates, payment history, account longevity and credit utilization among them. Here's what you need to know when looking for ways to establish first-time credit.

A primer on credit scores

First, some basic information on credit scores. FICO®️ credit scores, which are a prevailing industry measure, range from 300 to 850. The higher your score, the more likely lenders are to work with you based on your creditworthiness:

  • 800 and above is considered excellent.

  • 740 to 799 is very good.

  • 670 to 739 is good.

  • 580 to 669 is fair.

  • 579 and below is poor.

The variables that could affect FICO®️ scores specifically include: payment history (which makes up 35 percent of your credit score), amounts owed or outstanding (30 percent), length of credit history (15 percent), credit mix (10 percent) and new credit (10 percent). There are three main credit reporting bureaus that calculate this score, and consumers are entitled to one free annual view of their score from each agency — those being Equifax®, Experian® and TransUnion®.

Building first-time credit

Knowing all the factors that go into your credit profile helps young adults shape personal finance habits and build better scores. The earlier you can make credit clean-up a priority, the better, and this can be accomplished a few different ways. While the first thoughts of building credit always veer toward opening a credit card account on your own (for which a time will come), there are other ways to build credit without a credit card. When you're 18 you can: 

  • Become an authorized user: If you have a parent or legal guardian willing to add you as an authorized user to their card, that's an easy route to immediate creditworthiness. As an authorized user, young consumers will inherit the credit profile of that account and can use family cards that have been open for years to provide an initial boost to credit building. Of course, being added to a trusted account that makes timely payments is paramount.

  • Apply for a student loan: Going to college is a goal for many young credit builders. This higher education also offers them an opportunity to start a credit profile by applying for a student loan. Rising tuition costs mean more students are expected to contribute to their schooling, and securing a student loan enables young consumers to establish an account and make timely payments; both are actions that positively impact a credit score. Family members with established credit can also act as co-signers.

  • Make rent or mortgage payments: While not all young consumers live on their own, those who do also have the chance to build their profile without the need for a credit card. Say you live off campus during school; those rent payments you make can factor into your credit history. If you become a first-time homebuyer when young, then you establish first-time credit as well. Mortgages can gradually increase account length. Of course, timely payments are critical.

Getting a credit card for the first time

Inevitably, you'll apply for a credit card on your own. As the most direct way to establish first-time credit, these accounts are widespread and diverse in America, and finding the right card is important for young consumers. Consumers often value simplicity and convenience when choosing a card, but digging into the specifics is a priority for any consumer new to the process. Familiarize yourself with these basic elements of any credit card offer:

  • Interest rate: Specifically, the annual percentage rate (APR) is the rate at which you pay to borrow money. In the context of a credit card, it is applied if you carry a balance on your account. Although you may only be required to make a minimum payment, carrying increasing balances month over month exposes you to high-interest payments. Knowing what rate you sign up for, and what an introductory discount offer will expire and revert to, will help you maintain personal finance awareness.

  • Credit limit: Your credit card issuer will set a cap for your billing cycle. Any spending above that maximum may result in fines or penalties. Credit limits are often set according to the extent of the creditworthiness of the applicant, so as you build credit, be aware your lines may not be as large to start with; which thus means keeping strict attention to your spending and account management.

  • Rewards: There are all sorts of credit cards designed for specific uses or audiences, like travel cards that accrue miles or cashback when the card is used at certain stores. Compare your preferred categories and always read the fine print because some cashback bonuses may be limited opportunities.

  • Fees: Make sure to check for any annual maintenance fees, potential surcharges for services and any other costs that indicate more suitable cards for establishing first-time credit are available.

If a traditional credit card like the above isn't yet an option for you, consider a secured credit card. This option requires you put down a deposit for the card up front, but any spending and payment activity builds credit history, unlike a debit card.

You may also wonder whether one card is enough to sufficiently build your credit score. In many ways, credit cards are one piece of the puzzle. Having a healthy mix of installment credit (personal, home or student loans) and revolving credit (credit cards) is important to a high credit score. Speak to a representative at Comerica Bank to find the right credit card match for you. Contact us today.


This information is provided for general awareness purposes only and is not intended to be relied upon as legal or compliance advice. 

This article is provided for informational purposes only. While the information contained within has been compiled from source[s] which are believed to be reliable and accurate, Comerica Bank does not guarantee its accuracy. Consequently, it should not be considered a comprehensive statement on any matter nor be relied upon as such.

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