How To Build A Credit History

Credit newbies can take advantage of both tried-and-true methods and new alternatives.

- Lisa Gerstner

Most lenders expect you to have a decent credit record to qualify for a loan or credit card. But if you’ve never had a credit card or taken out a loan, you don’t have much of a credit history.

It’s a conundrum that young people face as they begin their adult lives. And having no credit record (or a thin one) touches more than just your ability to borrow money. A landlord may check your credit report before offering you an apartment, and a wireless carrier may peek at your credit before offering you service or setting a price for a plan or device.

Fortunately, you can establish a credit history even without a track record. And if your credit report contains negative items, such as late payments or a bankruptcy, you can use some of the same strategies to rebuild credit.

Apply for a credit card. Using a credit card responsibly helps you get a foot in the door to good credit. To build a positive history, pay your bills by the due date and try to keep the balance to less than 20% to 30% of the card’s limit. The percentage of available credit that you use on your cards is known as your credit utilization ratio, and the lower it is, the better for your credit score. As you learn the ropes, make just a few basic purchases monthly— say, to buy groceries—to help ensure that you can afford to pay the bill in full and avoid carrying a balance from month to month, which incurs interest.

Becoming an authorized user on a parent’s credit card is a common way young people start out with credit. That’s the route Nate Reistetter, 19, took after he heard some coworkers his age at a summer job talking about building credit. A sophomore at the University of Wisconsin—Madison, he charges some course materials to his mother’s