How to Build Credit

As much as 16% of the US population is troubled by a bad credit score. You may think this isn’t quite a big deal, but it is actually. Bad FICO scores aren’t just random digits that have something to do with credit bureaus. Those numbers are far more significant than you might think as they affect various aspects of your life.

In case you fall into that 16% of Americans with poor credit, we’re here to give you some useful insight and guidelines on how to build credit.

How Is a Credit Score Calculated?

To calculate your credit score, Experian, Equifax, and TransUnion — the three major bureaus in the USA — use various data from your credit report. The information is classified into five groups.

  • Payment history (35%)
  • Amounts owed (30%)
  • Credit history length (15%)
  • New credit (10%)
  • Credit mix (10%)

You can notice that each of these categories impacts your credit and has a different weightage on your score calculation. The most significant one is your payment history. Not surprisingly, though, as all lenders and creditors would like to know whether you are creditworthy, i.e., whether you paid your previous loans on time.

How Do You Build Credit?

We got you wondering why you need to build your credit? Excellent. Even if you’re not planning to get a loan or mortgage soon, you may need to do so at some point. Then you might come across a serious issue, even if you’ve been paying all your bills regularly and on time. Why? Well, because you have no credit history!

Now we get to another essential question: how should you start building credit?

Get a secured credit card

Without a doubt, credit cards are the best way to build credit. But how do you get a credit card when you need good credit for it? The secret lies in a secured credit card.

No, we aren’t using any code languages here. Credit cards can be classified into two major groups: unsecured and secured. The former refers to the most widespread type of cards that don’t require you to have any security deposit to use them. The latter, on the other hand, are secured by a cash deposit and are typically offered to a subprime borrower struggling with thin credit history.

No matter if you’re a young adult on a journey of building credit or you are seeking to improve your bad FICO, there is a vast array of credit cards you can use to build credit. But, there are a few important things to look out for.

Always opt for a credit card that has a low spending limit. It will be easier for you to qualify and get approved. Plus, you’ll be able to pay the due balance in full every month. And of course, never skip any payments, as that might have a dire effect on your credit.

But wait, how can something have a bad effect on your credit history if you don’t have it in the first place?

So far, we’ve grasped that secured credit cards are the best way for building credit. Bear in mind, however, that this wouldn’t be possible if you pick the wrong credit card issuer. Therefore, when applying for your first card, make sure that the company reports your payments to the main credit bureaus — Experian, Equifax, and TransUnion. Otherwise, getting a credit card for no credit wouldn’t have any point.

Get a credit builder loan

If you’re new to the realm of loans and credit cards, all those notions of credit rating, FICO score, and VantageScore may be your nemesis, mainly because you’ve got no idea what on earth is all about. Getting to know the whole point of credit scoring isn’t that complicated. But the process and ways to build credit could be.

Credit cards are an excellent solution for starting a credit score. Still, there will be occasions when this is simply not enough. So how to build credit when you have none? Well, the time has come to consider a bit more complex alternative — a credit builder loan.

Now, what is that?

Credit builder loans are designed for people with little to no credit score. It keeps the amount you borrowed in your bank account while you’re making your payments. You’re not allowed to access the money until you pay off the loan completely. This way, besides building your credit score, you have a chance to build your savings too.

Expectedly, such a loan doesn’t require a good FICO. In addition to requirements related to your legal age and residence, you only need to have regular income in order to make payments. Note, however, that this is a great way to build but not improve your credit score.

A recent analysis by the Consumer Financial Protection Bureau has indicated that a credit builder loan helped around 1,500 consumers with no credit increase their FICO scores by 60 points. Customers who had debts didn’t see any increase.

Just like with cards, credit building loans wouldn’t make any sense without reporting to credit bureaus. Since the lender registers your payments to at least one bureau, keeping up with them and paying on time is essential for raising a credit score.

Get credit for paying bills on time

Paying bills on time is crucial for two obvious reasons — to continue using the services and avoid debt. Additionally, late and missed payments will pop up as negative info on your credit report and stay there for seven years.

But has it ever occurred to you that paying bills on time is one of the effortless ways to build credit?

It’s not only credit card bills or loan payments that you shouldn’t miss. Your rent, utility, and phone bills should also be paid regularly and on time. To avoid being late or missing payments, consider setting a reminder or automatic payments.

Now, how to build credit by making timely payments?

Experian, one of the three big credit bureaus, has come up with various resources that could help you build or improve your credit score fast. One of them, Experian Boost, is linked to the bank account you use for bills. Once connected and verified, the service will identify your phone and utility payment history. If you made them all on time, you might get a boost of 13 points in your credit score.

Lower your credit utilization rate

Credit cards are quite a handy tool. Not only do you have an opportunity to save some cash while making payments, but they are probably the fastest way to build credit. But there is a tiny catch here. You mustn’t overuse or max them.

First, you might miss some payments and get into debt, which will ruin your FICO score. Secondly, you may give away the impression that you can’t handle your finances very well. As a result, your credit utilization rate will increase, which is a big no-no if you’re struggling to raise your credit score.

The credit utilization rate (also referred to as ratio) refers to your overall balances divided by the credit limit. Simply put, it shows how much of your available credit you use. Though it may sound like quantum physics, things are actually quite simple.

Let’s say you have two credit cards with $10,000 in credit at your disposal on both. If your balance on one amounts to $5,000, it means that you have used half of the total amount available. As a result, your credit utilization rate is 50%. As the optimal is 30%, this suggests that you’re overusing your credit cards.

What does it all have to do with boosting or establishing credit? A low credit utilization rate indicates that you’re not using all the amount you have on your cards. Credit report monitoring systems interpret this as a sign that you don’t tend to overspend. This, in turn, implies that you’re managing your credit well. As a result, you’ll be able to reach a higher score and enjoy all the benefits of a good FICO.

So, how to improve your credit score by lowering your utilization ratio? One of the possible ways is using a prepaid debit card. This is an excellent alternative to traditional debit and way better than a credit card. Plus, prepaid debit cards offer almost identical features with one significant advantage — you can never overdraft them.

Unlike traditional credit cards, prepaid debit cards have no direct effect on your credit. This is both good and bad — good as they help you control your spending but bad as you can’t use them for credit score improvement.

Become an authorized user on someone’s account

So far, you’ve got a clearer picture of how important the credit score actually is. Reaching a good or excellent FICO is a process that may take even a few years to complete. The sooner you start building credit from scratch, the better.

But how to build credit at the age of 18 or so? The simplest way is to ask someone to add you as an authorized user of their credit card. It could be a family member, a partner, a friend, or even a roommate. Not only is this one of the fastest ways to build credit, but it’s also the cheapest. You don’t need to have or use a credit card to take advantage of being an authorized user.

Make sure that the primary user’s payments have all been on time, as you’ll add them to your credit files as well. You want a long history of timely payments, not late or missed ones. Additionally, check whether the card company reports the activities of an authorized user to the credit bureaus. Chances are it does, but you’d want to be on the safe side. Otherwise, there’d be no point in adding you as an authorized user as you wouldn’t manage to build your credit fast.

To avoid any unwanted issues and clashes between you and the primary card user, consider making the deal or agreement on whether you’ll use the card and in what way. In case you will, it would be considerate of you to pay your share.

Look for inaccuracies in your credit report

If you’re persistent enough, you can establish your credit rather quickly using the different methods we’ve discussed. But, what if you’re struggling with a poor FICO score, which is not a result of missed or late payments? How to rebuild your credit in such a case?

According to the Fair Credit Reporting Act (FCRA), you’re entitled to a free report every 12 months. This gives you an opportunity to check all the information that credit bureaus have about you. When you get hold of your report, you can look for any incorrect negative items. If you find any, you can discuss them with the credit reporting agencies and request the issues’ removal free of charge.

You can keep trying until everything is fixed though it might take a bit long. Alternatively, you can use credit repair software or hire a credit repair company that will find the easiest and fastest way to build your credit. For a reasonable fee, a company will pledge to remove all the negative errors from your report.

To understand how to increase credit score using credit repair services, you need to know how they work. Once you choose the preferred company and sign up for it, you’ll be assigned a professional who will work with you on your credit repair process. When you get your report from free credit report websites, they will start challenging all inaccurate negative items from it by sending challenge letters to credit bureaus. Within 30 to 60 days, you should be able to see the first results.

Final Thoughts

No matter if you have a starter credit score or want to improve your FICO, note that there isn’t such a thing as a quick fix. The process may take from several months to a few years, depending on your situation and effort.

You need to keep in mind that neither of the tips from our guide on how to build credit will work if you keep missing payments, getting into debts, or maxing out your credit cards. Now that you’ve got an opportunity to improve your creditworthiness, use it wisely.


What's a great credit score?

Out of a score range from 300 (starter credit score) to 850, a FICO of 700 and above is typically considered good. Similarly, a FICO of 800 or higher is regarded as excellent. The average credit score is between 600 and 750.

How to build credit without a credit card?

If you’re not a huge fan of credit cards, you can try out other alternatives. For instance, you may consider getting a loan with no credit, or you may ask someone to add you as an authorized user of their credit card. This doesn’t mean you’ll be using it. But all payments that the original holder makes will be visible on your credit report too.

Another option is to sign up for Experian Boost service and get credit for paying utility and telecom bills on time. Also, you can hire a credit repair agency or sign up for credit repair software that will look for errors that could be fixed or offer a solution to handle them.

How to build credit with a credit card?

Credit cards are an easy way to build your credit, provided that you don’t overuse them. Most card issuers report your activity to at least one of the credit bureaus. If you make all your payments in full or at least a minimum due amount and on time, you’ll earn points on your report. Conversely, if you keep missing them, you’ll damage your score.

How long does it take to build credit with a secured credit card?

The time needed for the results to appear depends on whether you’re looking to build or improve your credit score. In case you’re just starting out, you should reach a good FICO score after six months of using the card. If you’re rebuilding damaged credit, it may take about 12 to 18 months of very responsible use to attain a fair or good credit score.

How to build business credit?

The steps for building business credit are similar to those for building a personal one. The very first is to pay your bills early, even before they are due. If you do so, you’ll earn extra credit. The second one is to open business credit cards that report to business credit bureaus. Lastly, as with personal credit, make sure that you keep your credit utilization rate low, ideally below 30%.

How long does it take to build credit?

How long it will take you to build your credit depends on your credit history. If you’re building your credit from scratch, it will take approximately six months to attain a good score. And if you’re improving bad credit, it will take about a year to reach a fair, and 18 months to attain a good FICO score.

If you wonder how to build credit faster, the answer is by starting now. There’s no quick fix, but the sooner you begin improving your FICO score, the sooner you’ll get results.


To be honest, I never wanted to become a writer. My dream job was a software developer/engineer or a graphic designer. But, as I’m far more skillful with words than maths, I got a degree in English language and literature. Now that I’ve been a content creator for six years, I’d never think about any other profession. I write as if my life depended on it. But don’t think writing is all I know of. When I get tired of it (yeah, it’s possible), I do yoga or play the guitar. When inspiration strikes me, I grab my camera and go out for a photo shoot. Although I prefer the nice weather, I could freeze to death for just a few good snaps.

Latest from Nevena

How to Make Money Online: Beginner’s Guide 15+ College Student Spending Statistics Most Expensive Stocks in 2023 How Old Do You Have to Be to Get a Debit Card?

Leave a Reply

Your email address will not be published. Required fields are marked *