How to Build Credit from Scratch: A Complete Guide

You can get a good credit score even starting from nothing. We show you the 3 best ways to do it.

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Adam Moelis
Sep 17, 2021
8 min Read

It’s time to start building your credit, but maybe you don’t know where to start. People with good credit scores enjoy lower interest rates on credit cards and loans, a better chance for credit card approval, more negotiating power (if you’re refinancing a loan), and easier approval for insurance and housing rentals.

When it comes to financing a car, getting a mortgage or taking out a personal loan, the difference between a good credit score and a bad one can save you tens of thousands over the course of your life.

The good news is there are proven strategies to help you build good credit. If you’re looking for some practical ways to build your credit from scratch, here are some steps you can take.

How Credit Works

Before trying to build your credit, it’s important to understand how credit works. There are many myths and misconceptions about credit.

When someone refers to your credit, they are generally talking about a 3-digit number that determines how trustworthy you are as a borrower. The higher your score is, the more responsible you appear to be in the eyes of lenders, and the better the interest rate you will get on any loan.

If you get a credit card or a loan, the lender will report your payment history to the three major credit bureaus: Experian, Equifax, and TransUnion. FICO and VantageScore are companies that provide credit scoring models that calculate your credit score based on what is reported to them by lenders and institutions about your financial activity.

Payments for your rent, utility bills, or cell phone bills are usually not reported to the credit bureaus.

Know What Impacts Your Score

Your credit score is made up of the following factors:

  • Payment History - 35%
  • Credit Utilization - 30%
  • Length of Credit History - 15%
  • New Credit - 10%
  • Credit Mix - 10%

Payment history and the amount of debt you owe makes up over 60% of your score, so these are two important factors to prioritize. The other factors are something to keep in mind, but they won’t be a major concern until your credit score is in the 700s.

Payment history just means making payments on time, so try never to make a late payment and your score will go up. If you can’t pay your bill on time, then it’s essential that you pay it within 30 days. You’ll probably be charged a late fee, but your credit won’t take as severe of a hit. The longer that your payment is late, the more damage that it will cause. It’s possible to experience a triple digit decrease to your score with payments that are more than 90 days late.

Credit utilization is the amount of credit you used divided by the amount of credit you were extended. If you had a $1,000 credit limit and you used $100, that would mean your credit utilization is 10%. A good rule of thumb is to keep your credit utilization below 30%. The good thing about credit utilization is you can carry a high balance for a short period of time. As long as you pay it off quickly, you shouldn’t see any damage. This can be very handy if you need to use your credit to avoid a late bill payment.

Building Credit Tip #1: Get a Starter Credit Card

One of the best ways to build a good credit score from scratch is to get a credit card. This is because you can build a positive credit history each time you make a payment. The longer you keep the card open, the longer your credit age gets which is also a good thing.

There are two types of credit cards: secured and unsecured. An unsecured credit card is what you're probably familiar with. The bank extends you credit, you swipe the card, and then you have to pay the bank back every month. This is risky for the bank because if you don’t pay them back, they eat the cost. This is why if you’re new to credit or have a low credit score, it may be difficult for you to get an unsecured credit card. 

With a secured credit card, you have to put a deposit down, which serves as your credit limit. The bank is taking no risk since if you miss a payment, they can keep your deposit. Secured cards are a great way to get credit from a bank, so that you can prove you are a reliable borrower by making your payments on time. Then in the future, you can get an unsecured card and take advantage of all the benefits and rewards that come along with it.

You can start with a secured credit card which may require a deposit of $200 - $300. Some of the best secured credit cards include Discover It and Capital One. Whether you’re using a secured or unsecured credit card, try to choose a card that doesn’t charge a lot of fees and keep your utilization below 30% at all times.

Building Credit Tip #2: Become an Authorized User

If you don’t want to get a secured credit card, another option is to become an “authorized user” on someone else’s card that you trust. Say a family member has a credit card and they add you as an authorized user.

Being listed as an authorized user will allow you to make purchases on someone else’s credit account. It’s common for people to add their spouses or partners to their credit account in the same way that they might share a bank account. Parents might also grant their teenagers access to their credit to help them build up a positive credit history early.

You will get credit for their on time payments. But be careful. Because if you’re an authorized user on someone else’s account and they make late payments, your credit score will be impacted negatively as well. In this case, it would be a good idea to remove yourself as an authorized user before too much damage is done.

‍Building Credit Tip #3: Credit Builder Loan

A credit builder loan’s sole purpose is to help build your credit. Similar to a secured credit card, the bank takes no risk when they give you a credit builder loan. This allows you to get a loan without having good credit to begin with, which helps you build your payment history.

With a credit builder loan, you are lent money into a savings account that you can’t actually use. Then, every month you pay installments to pay off the loan. Once the loan is paid off, you have access to the funds in the savings account plus any interest the funds have accumulated.

It’s a bit of financial engineering that allows you to demonstrate a payment history which improves your credit score. Each payment is reported to the credit bureaus as positive credit history. Once you’ve finished making payments, you’ll receive the savings minus fees and interest. Most banks and credit unions will offer credit builder loans.

What’s great about these types of loans is that you don’t need a good credit score to qualify. The downside is that interest rates for a credit builder loan may be high (since the bank wants to make money off the loan). You’ll also want to make sure the lender reports to all three major credit bureaus because some don’t.

Monitor Your Credit

Do you know what your credit score is and how it’s changing from month to month? It’s important to monitor your credit so you know where you stand and can track your progress. We recommend using sites like CreditSesame, CreditKarma, and Discover Scorecard which are free credit monitoring services.

These sites will also give you recommendations on how you can improve your score. You also want to make sure all the information on your credit report is accurate. Companies make mistakes all the time and you don’t want any errors to negatively impact your score.

Open a Savings Account With Yotta

Opening a savings account won’t impact your credit score, but it can be helpful for stashing money for a rainy day. Remember that payment history is the most important factor in determining your credit score. Having a savings account can help you manage unforeseeable issues and allow you to make future payments on time.

If you don’t already have a savings account, it’s easy to open one at a bank or credit union. The problem is that they don’t typically come with many benefits. Most of them offer an interest rate of 0.01% and nothing else. Yotta gives you a higher average interest rate and enters you into daily sweepstakes drawings.

The process is pretty simple. You’ll earn one ticket every week for every $25 that you have in your Yotta account. A drawing is made at 9 PM EST every day. The more numbers on your ticket that match, the more prizes that you can win. So far, Yotta users have won more than $7 million and all they had to do was save money.

Even if you don’t win any prizes, you’ll still be enjoying an above average interest rate. It might be easier to save up money knowing that you’ll be getting more tickets too. Hitting a big jackpot can go a very long way in improving your credit score. 


Getting a great credit score won’t happen overnight, but with the right strategy you can build your credit from scratch over time. Focus on practicing healthy financial habits and understanding how credit works.

Then consider using tools like a secured credit card, becoming an authorized user, or a credit builder loan to build a positive payment history. Your score should increase quickly as long as you continue making payments on time and keep your credit utilization low.

Opening a Yotta account is another option for improving your credit score. Saving money is essential to being able to make payments on time and keep your credit utilization low during tough times. With Yotta, you’ll have the chance to win a $1 million jackpot. Imagine how easier it would be to make payments on time and keep your credit utilization low if you won a few thousand dollar prize.

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