Millions of Americans have a slim credit history. Read on to learn how to build your credit history.

In the world of credit, you need a credit history in order to get credit and get the best rates.

Your credit history is what lenders and credit scoring models use to determine your creditworthiness. It’s a fancy word to describe how risky lenders think of lending you money. A long and positive credit history equates to a high level of creditworthiness and a low level of risk.

Consumers with little or no credit history are considered to have poor credit records. This means that you don’t have enough credit history for lenders to judge your credit risk. Just as a thin work history can make it more difficult to obtain a new job, a thin credit history can make it difficult to obtain new credit.

The disadvantages of a thin credit report

If you are an optimistic person, you like to think the best of people. So you are likely to give new people the benefit of the doubt. Lenders are do not optimistic entities. This is why they rely on credit reports and credit scores.

When you apply for a credit card or loan, the lender will perform a credit check to examine your credit history. They want to make sure that if they lend you the money, you will pay it back on time. Unfortunately, if you don’t have enough credit history for the lender to estimate your creditworthiness, they’ll usually put you in the high risk category by default.

Lenders don’t like risk – at least, unless you’re worth it. As such, high risk customers are generally forced to pay higher interest rates and additional fees to help offset this additional risk. That is, of course, if they approve of you at all; a thin credit history can mean that your application is rejected.

Building a credit history takes time

So how much credit history do you need? Typically, you will need at least six months before losing the lightweight file designation. This is the time it takes to qualify for a FICO® score. This is a three-digit number issued by the Fair Isaac Corporation, which is the most commonly used credit rating company.

That said, the longer your (positive) credit history, the better off you’ll be. On the one hand, lenders will look at your payment history going back years. The more payment history you have, the better your appearance. Plus, a long positive payment history can help compensate for the occasional mistake.

Also, the actual age of your credit history is part of your credit score. The scoring models take into account both the age of your oldest credit account and the average age of all your credit accounts.

The best way to build credit

In the workforce, there are entry-level jobs specifically designed to help you build your work history, unlocking bigger and better jobs. The credit industry also has its entry-level version of products aimed at helping you create credit.

One of the easiest ways to establish and build your credit history is to use a starter credit card.

If you’re a student, student credit cards can be a great way to start building credit. Most student cards do not have an annual fee and often offer rewards and other benefits.

If you are not a student, consider a secured credit card. Although secure cards require a cash deposit to open, you will get that deposit back as long as you keep your account in good standing and pay your balance on time each month. After about six months, you should have enough credit history to upgrade to a better card.

Of course, the key word in all of these tips is “positive”. Having a slim credit history is actually better than having a wrong Credit Report. So be sure to use your new credit card – or any other credit account you open – responsibly. Pay your bill on time each month, don’t open too many new accounts at once, and make sure you never take on more debt than you can repay.