If you’re building your credit score from scratch, you’ll likely need to start with a secured credit card. A secured card is backed by a cash deposit you make upfront; the deposit amount is usually the same as your credit limit.
You’ll use the card like any other credit card: Buy things, make a payment on or before the due date, incur interest if you don’t pay your balance in full. Your cash deposit is used as collateral if you fail to make payments.
You’ll receive your deposit back when you close the account.
Secured credit cards aren’t meant to be used forever. The purpose of a secured card is to build your credit enough to qualify for an unsecured card — a card without a deposit and with better benefits. Choose a secured card with a low annual fee and make sure it reports to all three credit bureaus, Equifax, Experian and TransUnion.
NerdWallet regularly reviews and ranks secured credit card options.
A credit-builder loan is exactly what it sounds like — its sole purpose is to help people build credit.
Typically, the money you borrow is held by the lender in an account and not released to you until the loan is repaid. It’s a forced savings program of sorts, and your payments are reported to credit bureaus. These loans are most often offered by credit unions or community banks; at least one lender offers them online.
It’s also possible to get a loan or an unsecured credit card using a co-signer. But be sure that you and the co-signer understand that the co-signer is on the hook for the full amount owed if you don’t pay. (See “What You Need to Know About Co-signing.”)