It might be surprising how important credit is in the United States. Having an established credit history and a strong credit score is vital to financing the purchase of a home or car loan, or for opening a credit card account. Your credit can also be a factor when applying to rent an apartment, requesting utility services or purchasing insurance. 

Unfortunately, those who are new to credit, including young adults and recent immigrants, can find it quite challenging to establish their credit history.

Getting Started

The Consumer Financial Protection Bureau (CFPB) reports that 19.4 million Americans, or 8.3 percent of the adult population, don’t have enough of a credit history to produce a credit score. Furthermore, an additional 26 million Americans do not have a credit record at one of the three major consumer credit bureaus, and are considered to be “credit invisible.”

Your credit report is a list of all of your credit accounts, including their balances and payment history. Establishing a strong credit history is about opening new accounts and managing them responsibly. To begin, you’ll need to open accounts that are the easiest to qualify for when you’re new to credit and have no credit history.

Secured Credit Cards

According to CFPB data, credit cards are the most popular way that Americans of all ages triggered a credit report.

One type of account that nearly anyone can qualify for is a secured credit card, like a Discover Secured Card. A secured credit card works much like a standard, unsecured card, except that you are required to submit a refundable security deposit before your account can be opened. Once your account is open, it will likely work just like any other credit card. You will receive monthly statements and typically must make a minimum payment each month, as your deposit is only used if you default.

When you make your payments on time, you contribute to building your credit history and increasing your credit score. When you qualify to upgrade to a standard, unsecured card, or close your secured card account, you’ll generally receive a refund of your security deposit.

The Consumer Financial Protection Bureau (CFPB) reports that 19.4 million Americans, or 8.3% of the adult population, don’t have enough of a credit history to produce a credit score.

Department Store Cards

Another option available to you can be a store charge card. These cards are offered to customers with little or no credit history. These cards work much like credit cards, but they generally don’t belong to a payment network and usually can only be used to make purchases at a single store — which may include multiple locations and online purchases.

Without a credit history, you may only be offered a modest line of credit, and the card may have interest rates that aren’t competitive. But, when you use a store charge card responsibly, it can be a way to add positive information to your credit report.

Becoming an Authorized User

Another way to build your credit history is to become an authorized user on someone else’s credit card account. For example, young adults could become authorized users on their parents’ accounts, and recent immigrants could become authorized users on a family member’s account.

Even though the primary account holder will always be responsible for repayment, the account will appear on the credit history of the authorized user. And when the account is managed responsibly, it may add to the authorized user’s positive credit history.

Improving Your Credit History and Your Credit Score

Once you’ve opened one or more credit accounts, your next priority will be to manage these accounts to create a credit history and to build your credit score. One of the most important factors in your credit score is your record of on-time payment. By consistently making your payments on or before the due date, you are more likely to create a positive credit history.

It’s also important that you control your level of debt. Credit experts recommend keeping your debt utilization ratio — which is how much you owe, in relation to your available credit — as low as possible.

Another factor affecting your credit report and credit score is the length of your credit history. To improve this factor, try to avoid constantly opening and closing new accounts.

Also, it helps to be patient. When you’re new to credit, it can take at least of year of responsible credit card use and loan repayment until you’ve established a strong credit history.

Legal Disclaimer: This site is for educational purposes and is not a substitute for professional advice. The material on this site is not intended to provide legal, investment, or financial advice and does not indicate the availability of any Discover product or service. It does not guarantee that Discover offers or endorses a product or service. For specific advice about your unique circumstances, you may wish to consult a qualified professional.