Whether you’ve just turned 18, are headed to college for the first time or are simply ready to dip your toes into credit, you probably have a lot of questions -- like what is a credit score anyway, and how do you build one?
I know a thing or two about building credit. I’m a credit card expert with over a decade of experience, and I’m a member of CNET’s expert review board. Why you’re new to credit doesn’t necessarily matter -- what does is that you’re here now, and I’m happy to help put you on the right path toward a positive financial future.
Credit basics
If you wanted to borrow money a century ago, the banker might have just looked you up and down while listening to your story before asking about your financial reputation around town.
Today, it works a little differently. Instead of basing a credit decision on word of mouth, lenders review your credit report to understand how you manage your credit payments.
Every time you open a credit account, like a credit card, your lender reports your balance and payment history to the three major consumer credit bureaus -- Equifax, Experian and TransUnion. Using this information, lenders create a three-digit number meant to capture how responsible you are with credit accounts: your credit score.
The credit score was created to save time and improve accuracy. It’s a number between 300and 850 that takes all your reported financial information on your credit reports into account. Compared with how credit used to be determined, this system tries to remove bias while making credit accessible to everyone.
Reading your credit score
You actually have more than one credit score, as there are several different score models. FICO is the largest producer of credit scores, but VantageScore is its nearest competitor.
Here’s how they shake out:
| FICO Score | VantageScore |
| Poor -- 300-579 | Very poor -- 300-499 |
| Fair -- 580-669 | Poor -- 500-600 |
| Good -- 670-739 | Fair -- 601-660 |
| Very good -- 740-799 | Good -- 661-780 |
| Exceptional -- 800-850 | Excellent -- 781-850 |
Those with higher scores are more likely to be approved for a loan or a line of credit with favorable terms. Those with lower scores may receive offers with higher interest rates or fees, or may be declined for a loan. You may even need a good credit score to get approved for an apartment or other rental.
The exact formulas for credit scores are a closely guarded secret, but the companies do share the broad outlines. Your FICO score is:
- 35% payment history
- 30% amounts owed
- 15% length of your credit history
- 10% credit mix
- 10% new credit
How to get started with credit
Now that you know the basics of how credit reports and credit scores work, here’s a guide to getting started.
Step 1: Check your credit history and credit score
Even though you’re new to credit, you may have some credit history without realizing it. For example, your student loans will show up on your credit report. And if your parent added you as an authorized user on one of their cards, you might already have some payment history available.
To check your credit reports, you can request a free copy from AnnualCreditReport.com, which is the only official site for requesting copies of your credit reports from the major consumer credit bureaus. You can get a free copy every week.
You can check your credit score directly on the three credit bureaus’ websites or via several free sources, including Capital One CreditWise and as a card perk with any Discover credit card.
2. Get a starter credit card
There are thousands of credit cards offered by national, regional and local banks, as well as credit unions.
Most are designed for people with an established credit history, but there are still credit cards for those who are new to credit.
You could apply for a very basic credit card with a bank or credit union that you already have a relationship with. Some good starter cards include the Capital One Platinum Credit Card*, the BankAmericard® credit card* and the Chase Freedom Rise℠ Credit Card*.
Another option is to apply for a store credit card, which most major retailers offer. These cards will likely offer you a low credit limit and high interest rates, but they can be a good way for you to begin establishing your credit.
However, a typical store charge card only allows purchases from that brand, unless it’s also part of a larger payment network such as Visa or Mastercard. And they often have steep interest rates, so make sure you charge only what you can afford to pay off in full each month.
A third way is to apply for a secured credit card. These cards work just like any other cards, but they require the payment of a refundable security deposit before your account can be opened.
The amount of your security deposit typically becomes the amount of your account’s credit limit, but you still have to make regular monthly payments. Later, you can usually switch to a standard, unsecured card and receive your deposit back.
Examples of no annual fee secured cards from major issuers include the Capital One Platinum Secured Credit Card*, the Discover it® Secured Credit Card* and the BankAmericard® Secured Credit Card*.
3. Use your card responsibly
Getting your first credit card isn’t too hard, but the key to building credit is to use your card responsibly, which means two things:
First, always pay your bills on time. The easy way to do this is to configure your cards for auto-pay. That way, you don’t have to remember to make your payments on time -- it happens automatically.
Second, don’t carry any debt. The way to do this is to use your cards like cash, and always pay your balance in full. Not only will you enjoy great credit, but you won’t incur costly interest charges either. Within a year of responsible use, most credit card users will find that their credit score has significantly improved.
Once you have a track record of responsible credit card use, you might consider getting additional credit cards -- but never apply for more than you can handle responsibly.
The bottom line
Some parts about using credit may sound confusing, but in practice, it’s as easy as keeping your spending in check and your due dates in mind.
By taking the time to understand credit, choosing the right card and managing it responsibly, you can be on your way to enjoying the good credit that you deserve.
*All information about the Capital One Platinum Credit Card, BankAmericard® credit card, Chase Freedom Rise℠ Credit Card, Capital One Platinum Secured Credit Card, Discover it® Secured Credit Card and the BankAmericard® Secured Credit Card has been collected independently by CNET and has not been reviewed by the issuer.
The editorial content on this page is based solely on objective, independent assessments by our writers and is not influenced by advertising or partnerships. It has not been provided or commissioned by any third party. However, we may receive compensation when you click on links to products or services offered by our partners.
