You are new to credit. Perhaps you recently graduated from college, or you moved to the country recently. 

You are looking to build a strong credit score, to enjoy a better future. You would like to buy a home, save on your auto insurance, and of course, earn travel points and rewards through credit cards. 

The most widely used credit scores are created by FICO. With a FICO score of 700 or higher, you’ll be able to obtain access to most credit cards and loans, at competitive interest rates.  How do you get there – as soon as possible? 

By following the steps below, you will learn how to build a FICO score of 700 or higher, in just 12 months. Let’s dive in.    

Step 1: Have Someone Else Add You As An Authorized User To Their Credit Card (Optional)

You build a great credit score by always paying your bills on time, and keeping your credit card debts low. However, you don’t have to sign up for a credit card, to start building an excellent credit score. You can benefit from another person’s excellent payment history. 

Where might you find this person? Perhaps it is your parents or another relative, or a friend who has several years of credit history, or one of your colleagues at work. Let them know that you are trying to build an excellent credit score, and they can help you reach this goal, in a risk-free manner. 

All they have to do is add you as an authorized user to their credit card. They don’t need to give you a copy of the card, or provide you with access to the account. Simply adding your name to the account (and providing your Social Security Number, date of birth and other identifying details), allows you to benefit from the length of time that the account has been open, as well as their strong payment history. 

You must make sure that the person you choose carries a low balance on the card, meaning, they don’t overuse the card. Ideally, they keep their utilization on the card below 30% of the card’s limit. 

How does this work? Basically, as of the date when the statement for the card is generated, the ratio of their balance to limit, should fall below 30%. As an example, if they have a limit of $1,000, their balance as of the date when the statement is generated, should fall below $300.  

In a nutshell, just ask them how much they spend on the card each month. If it is below 30% of the card’s limit, you should be fine. 

You’ll also want to choose someone who always pays their credit card on time. If they pay late, this reduces your credit score, since late payments will appear on your credit reports.  A single 30 day late payment can reduce your score by 80 points or more. So, be sure to choose someone who is responsible. 

What if you don’t know anyone who can add you as an authorized user? Don’t worry – just following the other two steps of the process. If you do both of those, you should get to a 700 in 12 months, even without being an authorized user. 

Step 2: Open A Secured Credit Card

Even if you have someone add you as an authorized user to a credit card, you still need to open your own credit cards. Holding an account on your own weighs more heavily on your credit report than being an authorized user on someone else’s card. 

However, since you don’t yet have any credit history, it is hard to qualify for most standard credit cards. There are credit card issuers who will give you a credit card with no credit score, but these cards tend to have high annual fees and excessive interest rates. 

For this reason, you’ll want to apply for a secured credit card. With a secured card, you provide the credit card issuer with a deposit, which equals part or all of your credit limit. This way, the credit card issuer reduces their risk if you don’t pay your bills – they can simply take the deposit you provided. As a result, secured credit cards are much easier to obtain approval for. 

With some secured credit cards, after 8 to 12 months of on-time payment history, you’ll be upgraded to an unsecured credit card. This means your deposit will be returned to you, and you can continue building credit. In most cases, the spending limit on the card will be increased as well. 

What are the best options for secured credit cards? Discover and Capital One both offer secured credit cards with no annual fee, and in the case of Capital One, a security deposit as low as $49. As discussed, both of these cards are quite easy to obtain approval for. 

Neither of these cards has any annual fees. So, if you pay off your balance on the card each month (and thus avoid interest), you wont have to pay any  

Also, Discover will provide you with a free FICO score and access to your credit summary from Experian, so you can monitor your progress in building credit. Capital One offers access to your TransUnion report and VantageScore, which is also useful, although the VantageScore is used by few lenders. 

Step 3: Manage These Credit Cards Wisely

It isn’t enough to just sign up for these credit cards – you need to use them in as wise a manner as possible. First and foremost, this means making your payment on time each month  – every single month. 

35% of your FICO score consists of your payment history on accounts, that is, always making payments on time. In order to make sure you pay on time, you might want to consider setting up automatic payments, or creating a calendar reminder, to make sure that you don’t forget.

Also, you must be very deliberate in how you make use of these two accounts. You should only make 1 small purchases on each card, every month. It is important that you use the card at least  occasionally, because otherwise the card might be closed for inactivity, which would set back your credit building efforts.

However, you don’t have to go into debt, in order to build a strong credit score. Rather, you should focus on making a small purchase each month, ideally something you would have bought anyways. 

You probably need to buy gas (or, if you use public transportation, a weekly or monthly subway pass). You definitely have to purchase food/groceries. These are the sorts of simple purchases which you can place on secured cards. Remember, try to make just 1 such purchase. 

30% of your credit score is the amount of debt you carry. When it comes to credit cards, this is measured by your balance on the card (how much you spent as of a particular date), divided by the credit limit on the card. So, if you have a balance of $200 on a card, and a spending limit of $1000, your utilization of the card is 20%.

As mentioned earlier, for credit scoring purposes, the utilization which appears on your credit report, is as of or around the date when your statement was generated. So, on that date, if you have a balance of $100, and a limit of $1,000, your utilization will be 10%. You can find out when your statement is generated, by asking your credit card issuer.

Ideally, you’ll want to keep your utilization below 30% of the card’s limit. Even better, if you can stay below 10% of utilization, you’ll further maximize your credit score. 

However, you probably want to avoid showing $0 balance, as of the date when your statement was generated. Showing $0 balance can suggest to credit card issuers that you don’t really use the card, which would imply that you aren’t really managing your credit.  

Step 4: Open a Credit Builder Account

You’ll want to sign up for a credit builder account. With this type of account, the company which issues the loan will set aside some amount of money (let’s say $300) for you, in an interest-earning savings account. You don’t have access to that account (for now). Let’s say they agree to hold the money in the account for 12 months.  

Each month, you’ll pay $25 towards that $300 which was set aside for you. Remember, $25 times 12 is $300, so at the end of 12 months, you’ll have paid off the full $300 which was placed in the savings account. 

These monthly payments will be reported to the credit bureaus each month. So, if you always pay on time, you’ll continue to build a positive credit score. At the end of the 12 months, the money you repaid, minus interest charges, will be returned.

Why are there interest charges? As your grandmother might have told you, nothing in life is free. The lender treated the money they set aside for you, as a loan. They could have lent that money out to someone else, to buy a home, a car, or start a business. 

Since the lender gave up that opportunity, they charge interest rates and fees. However, these rates and fees are far lower than if you had a personal loan with the same company.             

Let’s apply the example above. If the lender sets aside $300, which you paid off after 12 months, you should expect to get back around $260 (meaning, around 13% in interest and fees). 

A credit builder account helps you in several ways. First, it adds yet another positive account to your credit reports. Each month that you pay on time,  you are adding beneficial payment history, and thus improving your credit score. 

Additionally, a credit builder account offers a better mix of credit. Your FICO score is determined by five factors, one of which is your mix of credit. This accounts for 10% of your score. Having an installment account, such as a credit builder account, in addition to credit cards, will thus further boost your score.

Self Inc, formerly Self Lender, offers one of the best credit builder products on the market. Thanks to recent changes, Self Inc also offers a secured credit card, after you’ve had an account with Self for several months. This allows you to open a secured card, without having to provide a deposit, or going through a hard inquiry.    

The Final Word

Credit is often quite confusing to understand. Yet, the keys to building a good credit score from scratch, are quite simple. Simply follow the steps above. By doing so, you can absolutely go from no credit score, to a 700 FICO score, in 12 months or less. Thousands of people have done it. Now, it’s your turn.