Dipping your toe into the world of credit? You’re in luck: There are more ways to establish credit now than there were in decades past.
You build your credit score by adding positive information to your credit reports, which are files of financial data about you. These files are compiled by the three major credit bureaus, Experian, Equifax and TransUnion. Lenders, landlords and employers may check one or more of those files while reviewing your application.
Here are three well-known ways to establish credit, plus some new products designed to give you a leg up.
Traditional credit-building tools
These three approaches can quickly build your credit .
Authorized user
Ask someone with good credit habits to add you as a user on their credit card. They don’t have to let you use the card; just being added to the account is enough.
Pro: You can benefit from their credit history.
Con: Not all card issuers report authorized user activity to the bureaus, so check that first.
Secured credit card
These cards are relatively easy to qualify for because they require an upfront deposit.
Pro: Payments are usually reported to all bureaus.
Con: Your credit limit is typically small.
Credit-builder loan
These help you improve your credit and save at the same time.
Pro: Payments are usually reported to all bureaus.
Con: You cannot access funds until you’ve paid back the loan.
New tools that can helpQualifying for credit when you are new to credit is tough. These new tools try to recognize or reward you for paying bills that don’t normally factor into your score.
Rent reporting
Paying rent is traditionally not counted toward your credit score. But many companies, including Rent Reporters, RentTrack, Rock the Score, and CreditMyRent, will let you or your landlord report your rent payments to the bureaus.
Pro:
- You can opt in or out of having rent reported.
Cons:
- Not all credit score models incorporate the data. The widely used FICO 8 scoring formula doesn’t consider rent. But VantageScore, FICO’s competitor, does.
- Reporting companies charge a monthly fee of $6.95 to $9.95 and a one-time enrollment fee of $25 to $95.
- Some companies report payments to only one or two credit bureaus. You want payments reported to all three.
Experian Boost
This free service lets you add on-time cell phone and utility payments to your Experian credit report. This information, which is not typically counted toward your score, is used to calculate your FICO score and can push it up higher.
Pros:
- You don’t need to qualify for Boost. As long as you pay utility and cell phone bills through your bank account, that information can be added to your Experian report.
- Only on-time payments are added. This is different from how credit usually works, where both on-time and late payments go on credit reports.
Cons:
- Payments show up only in your Experian credit report, not the other two.
- You have to let Experian’s data partner scan your bank account transactions.
- Lenders unfamiliar with this new product may interpret your utility and cell phone information as part of your debt load, which affects your chances of qualifying for credit. Experian is “working with lenders to ensure they understand these positive payments,” spokeswoman Amanda Garofalo says.
UltraFICO
This new score is not yet widely available, but FICO says it will roll out this spring. Unlike the traditional FICO score, UltraFICO takes into account how much you have in savings, how long your bank accounts have been open and how active they are.
If you cannot qualify for a credit product with your score, you can ask lenders to pull your UltraFICO and give you a second shot.
Pros:
- Free.
- Rewards responsible spending and saving.
Cons:
- You have to let FICO’s data partner scan your bank account transactions.
- You cannot see your UltraFICO score unless you’ve been rejected.
Experian Lift
Experian is also working on a new credit score, meant for lenders, that uses nontraditional data to paint a finer picture of your finances. The data includes on-time rent payments, payday loans, prepaid cards, check cashers and public records such as evictions and professional licenses, Experian says. It also looks at whether you pay your bills in full or minimums.
“Lenders can use the new score as their primary score, as a second-chance score (for loan application declines) … or as an overlay to an existing score to create a more complete picture of a person’s creditworthiness,” says Alpa Lally, vice president of Experian Data Business.
Experian Lift will roll out to lenders early this year, she says.
Pro:
- Considers data from financial institutions that don’t usually report to the major credit bureaus.
Cons:
- You cannot see your Lift score unless you’ve been rejected.
- You cannot opt in or out of sharing your data.
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Amrita Jayakumar is a writer at NerdWallet. Email: ajayakumar@nerdwallet.com. Twitter: @ajbombay.
