How to Build Credit: 15 Proven Strategies for Establishing a Strong Credit Score
Building credit can seem like a daunting task, especially when you’re starting from scratch or recovering from past financial challenges. The dilemma is that lenders and creditors want to see a history of responsible borrowing and repayment, but you need credit to build that history. Fortunately, there are effective tools and strategies to help you establish or rebuild your credit. Whether you’re new to credit or looking to improve your score, here are 15 proven ways to build credit that will lead to a stronger financial future.
Having good credit opens doors to better financial opportunities, from securing loans with favorable terms to getting approved for an apartment rental. In this guide, we’ll explore the steps you can take to start building your credit and create a foundation for a strong financial future. Follow these practical tips to boost your credit score and learn how to maintain it over time.
1. Start with a Secured Credit Card
A secured credit card is one of the easiest and most accessible ways to start building credit. This type of card requires a security deposit, typically equal to your credit limit. For example, if you deposit $300, that becomes your credit limit. This deposit minimizes risk for the card issuer and provides you with the opportunity to build your credit.
Once approved, use your secured card like a regular credit card—make small purchases and pay off the balance on time each month. This payment activity is reported to credit bureaus, helping you build a credit history. Over time, these responsible habits will improve your credit score.
Secured credit cards are ideal for people with no credit or those looking to rebuild poor credit. Many secured cards come with low annual fees, and you’ll often receive your deposit back when you upgrade to an unsecured card or close your account in good standing.
What to Look for in a Secured Card:
- Low or no annual fees.
- Regular reporting to all three major credit bureaus: Equifax, Experian, and TransUnion.
- The option to graduate to an unsecured card after demonstrating responsible use.
- Interest rates—be sure to understand the APR to avoid high charges if you don’t pay in full.
When using a secured credit card, it’s essential to monitor your spending closely. The goal is to establish a responsible credit habit that will translate into positive behavior with unsecured credit cards in the future.
Pro Tip: Make small purchases on your secured card that you can pay off in full each month to avoid interest charges. This way, you’ll build credit without accumulating debt. For example, using your secured card for gas or groceries and paying it off immediately can help build a strong credit profile without financial strain. After several months of responsible use, you may be able to transition to an unsecured card with better terms.
2. Build Credit with a Credit-Builder Loan
Credit-builder loans are specifically designed to help individuals build or improve their credit. Unlike a traditional loan, the money you “borrow” is held by the lender in a savings account or certificate of deposit (CD) until the loan is fully repaid. This creates a forced savings mechanism that benefits you financially while improving your credit.
As you make on-time payments, they’re reported to the credit bureaus, helping to establish a positive credit history. Once the loan is repaid, you receive the money that was set aside, making this a forced savings plan of sorts. Credit-builder loans are often available through credit unions, community banks, and online platforms like Self and SeedFi.
A significant advantage of credit-builder loans is that they provide a low-risk way to build credit, especially for those who might struggle to qualify for traditional credit products. Since you don’t actually receive the funds until the loan is fully repaid, the risk to both you and the lender is minimized.
Who Should Consider a Credit-Builder Loan?
- Individuals with no credit history looking to establish credit.
- People with poor credit who want to rebuild their credit profile.
- Those looking for a disciplined way to save money while building credit.
For example, if you take out a $500 credit-builder loan with a 12-month repayment term, your monthly payments are deposited into a savings account. Once the loan is repaid, the savings account is unlocked, and the money is yours to use. The key benefit is that your payment history is reported to the credit bureaus, helping you build a credit record.
Pro Tip: Make sure you’re aware of the fees associated with credit-builder loans. Some institutions charge a small fee to set up the loan, but the long-term benefits of improved credit far outweigh this cost.
3. Use a Co-Signer for Credit Cards or Loans
If you’re unable to qualify for a credit card or loan on your own, having a co-signer can be a helpful option. A co-signer is someone with good credit who agrees to share responsibility for the debt if you’re unable to make payments. Their strong credit profile increases your chances of being approved, while your responsible repayment helps build your credit history.
How Co-Signing Works: When someone co-signs for you, they are legally responsible for the debt if you fail to make payments. This can be a risky move for the co-signer, so it’s important that both parties understand the terms. The co-signer’s credit is affected by your repayment habits, which is why this arrangement is typically done between trusted individuals, such as family members or close friends.
While having a co-signer can be a great way to access credit products you wouldn’t qualify for on your own, it’s important to understand the potential risks. Missed payments will not only harm your credit score but also damage the credit of your co-signer. This is why communication and a clear understanding of responsibilities are essential before entering into a co-signed agreement.
Pro Tip: If you’re using a co-signer, communicate clearly about payment expectations and responsibilities. Missing a payment not only harms your credit but also damages the co-signer’s credit.
4. Become an Authorized User on a Credit Card
Another effective strategy is to become an authorized user on a family member’s or friend’s credit card. When you’re added as an authorized user, the primary account holder’s credit card activity (such as on-time payments and low balances) is reported on your credit file.
This allows you to benefit from their positive credit history without needing to use the card yourself. However, it’s essential to confirm that the credit card issuer reports authorized user activity to the credit bureaus. Additionally, have an agreement in place with the primary cardholder regarding how (or if) you’ll use the card and whether you’ll be responsible for any payments.
Being an authorized user is a low-risk way to build credit, as you aren’t financially responsible for the balance. Still, it’s a good idea to establish clear terms with the primary cardholder to avoid any potential misunderstandings.
If you’re added to a card with a high credit limit and low balance, your credit utilization ratio will benefit. Credit utilization refers to the percentage of your total available credit that you’re using—lower utilization typically leads to a better credit score. So, even without actively using the card, you can still enjoy the benefits of the primary cardholder’s responsible behavior.
Pro Tip: Choose a primary cardholder with a long credit history, a high credit limit, and a record of on-time payments. This will help boost your credit profile more effectively.
5. Explore Rent-Reporting Services
If you’re already making monthly rent payments, you can use rent-reporting services to add this information to your credit report. Services like Rental Kharma and LevelCredit report your rent payments to major credit bureaus, helping to establish a positive history of on-time payments.
While not all credit scoring models consider rent payments, some do, and this can be enough to help you qualify for other credit products in the future. This method is particularly useful if you’re looking to build credit without a traditional credit card or loan.
Rent-reporting services typically charge a small fee, but the long-term benefits of building credit through regular rent payments can outweigh the cost. Additionally, having rent payment history on your credit report can be especially useful when applying for mortgages or other types of financing.
Pro Tip: If your landlord or property management company offers a rent-reporting service, take advantage of it. This can help streamline the process and potentially reduce fees.
Rent-reporting services can be especially useful for renters who don’t have traditional credit products in their name, such as credit cards or loans. By building a history of consistent, on-time rent payments, you can demonstrate financial responsibility, which can be valuable when applying for loans, mortgages, or even future rentals.
6. Use Experian Boost for Utility and Phone Payments
Experian Boost is a free tool that allows you to add utility and phone bill payments to your Experian credit report. While this only affects your score with Experian (and not the other bureaus), it can still have a positive impact.
Experian Boost is easy to set up and can provide an instant increase in your credit score, especially if you have limited or no credit history. It’s a great way to get credit for bills you’re already paying regularly. The service works by linking your bank account, allowing Experian to track your utility and phone payments. When these payments are consistently on time, your credit score may improve.
Pro Tip: Since this service only impacts your Experian report, it’s most effective if lenders you’re working with primarily use Experian scores.
7. Apply for a Secured Loan
A secured loan is another way to build credit, particularly if you have money on deposit with a bank or credit union. These loans are backed by collateral, such as your savings account or certificate of deposit (CD), making them less risky for lenders.
The lender will report your payments to the credit bureaus, and because these loans are typically lower in interest than unsecured loans, they’re a cost-effective way to build or improve your credit score.
For example, if you have a $1,000 certificate of deposit, you can take out a secured loan for a portion of that amount. As you make regular payments on the loan, your credit score improves, and once the loan is paid off, your CD remains intact.
Pro Tip: Secured loans are a great option if you have existing savings and want to build credit without taking on high-interest debt.
8. Practice Good Credit Habits
Regardless of the credit-building tools you use, it’s crucial to practice good credit habits. Payment history accounts for a large portion of your credit score, so always aim to pay your bills on time. Late payments can have a significant negative impact on your score.
If you’re using credit cards, try to pay more than the minimum balance whenever possible, and keep your credit utilization low—preferably below 30% of your total credit limit. Consistently following these habits will help you build and maintain good credit over time.
9. Check Your Credit Report Regularly
Monitoring your credit report is essential for tracking your progress and catching any errors that could negatively impact your score. You’re entitled to one free credit report per year from each of the three major bureaus through AnnualCreditReport.com.
Look for inaccuracies, such as accounts you don’t recognize or incorrect payment information, and dispute any errors with the credit bureau. Staying on top of your credit report helps ensure that your credit-building efforts are reflected accurately.
10. Limit Hard Credit Inquiries
Every time you apply for credit, a hard inquiry is placed on your credit report, which can lower your score by a few points. While this effect is temporary, multiple inquiries in a short period can have a more significant impact.
To minimize the effect of hard inquiries, avoid applying for too many credit products at once. When shopping for major loans like mortgages or auto loans, multiple inquiries made within a short time frame are usually treated as one inquiry for scoring purposes.
11. Keep Your Old Credit Accounts Open
The length of your credit history is another factor that influences your credit score. Keeping old accounts open, even if you’re not using them regularly, can help improve your score by increasing the average age of your credit accounts.
