How To Build Your Credit

How To Build Your Credit

Building up your credit can be somewhat tricky especially if you do not have a credit history. When that is the case, getting a credit card, a loan, or even a home can be very hard.

So, how do you even show a history of responsible repayment when no one willing to give you credit?

For example, to have a Fair Isaac Corporation (FICO) score, you will be required to have at least one account that has been open for at least six months, and at the very least, one creditor reporting your financial activity to credit bureaus within the last six months. It is important to note that a Vantage Score, which is FICO’s biggest competitor, can be created much faster.

The good thing though is that there are a couple of tools that can help you create a credit history. These include a co-signed credit loan or card, an authorized user status on another party’s credit card, or a credit builder loan. Whichever option you settle for, it is advisable that you use it in a way that it will eventually help you create a good score.

Five ways to establish good credit

1. Apply for, or get a secured credit card

If you are looking to build you credit score from the ground up, then consider starting with a secured credit card. Secured credit cards are backed by cash deposits that you make upfront. The amount you deposit is usually the same as that of your credit limit.

The good thing about a secured credit card is that you can use it just like you would a standard credit card. You can use it to make payments before the due date or even to buy things. However, it is important to note that if you do not pay all your balances in full, you may end up incurring interest. With these cards, when you fail to make your payments in time, the cash you deposited will be used as collateral. But the good thing is that your deposit will be given back to you when you decide to close your account.

It is important to note that these cards are not long term. Their main purpose is to help you build your score to the point where you qualify to get an unsecured card – which is a card without any deposits and with more benefits.

If you are going for a secured card with low annual fees, then make sure that it reports to the 3 main credit bureaus: TransUnion, Experian, and Equifax.

NerdWallet ranks and reviews secured credit card options regularly.

2. Apply for A Credit Builder Loan
Credit builder loans are exactly what they sound like. Their sole purpose is to aid people looking to build their credit.

With credit builder loans, the cash you borrow is held by the moneylender in an account and cannot be released until you have repaid the loan in full. This loan is, in some way, a forced savings program and your loan payments are all reported to credit bureaus. Credit builder loans are often offered by community banks or credit unions, and the good thing is that at least one of these lenders offers them online.

3. Find a Co-Signer
It is also possible to get an unsecured credit card or loan using a co-signer. However, make sure that you and the person you co-sign with understand that he or she will be required to pay the amount loaned in full if you fail to pay. Click here to know more about Co-signing.

4. Consider Becoming An Authorized User On Another Person’s Credit Card

Family members or close relatives may be willing to have you added as an authorized user on their card. As an authorized credit card user, it is easier to get access to credit card options, allowing you to build up your credit history. However, you are not legally obligated to pay for the charges you incur.

How To Build Your Credit

It is advisable that you ask the cardholder to find out if the card issuer reports the activities of an authorized user to credit bureaus. While these activities are generally reported, it is still advisable that you find out if the card issuer does – otherwise, your efforts to build your credit will all be in vain.

Make sure that you reach an agreement on how you will use the card before you are made an authorized user. If the cardholder requires you to pay your share, then consider doing so though you are not legally obligated to do so.

5. Get Credit For Rent You Pay

Rent reporting companies like RentTrack and Rental Kharma take bills you are paying and put them on your credit report. This helps build a more positive history by showing that you make payments on-time. Not every lender considers these payments; however, some do, and that is enough to get a credit card or loan that improves your credit history.

Good Habits Build Credit Score

The truth of the matter is that building a good and strong credit score will take time – normally about 6-months of on-time payments. To improve your score, these good credit habits will show that you are creditworthy:

  • Make all your payments and pay your bills on time, every time to improve your creditworthiness. Bills that stay unpaid for long can be sold to collection agencies, and you do not want that happening as it will hurt your credit.
  • Make sure that your credit utilization (your balance compared to your limit) is always low. It is advisable that you consider paying balances in full every month, however, if you do carry any balance, do not let it go past thirty percent of your credit limit.
  • Keep accounts you have open for as long as you can. Unless one of the cards you have has an annual fee, keep the rest open and active to lengthen your credit utilization and payment history.
  • It is advisable that you avoid opening up too many accounts all at once; new accounts tend to lower the average age of an account, something that makes up your credit score.
  • Annually check your credit reports for any discrepancies and errors.
  • Learn To Check Your Credit Reports and Scores

Credit reports are a record of how you have used credit in the past. Credit scores, on the other hand, estimate how you will handle credit in future days by using the information made available in your credit report. It is important that you monitor these two things to see if your credit building efforts are paying off and look for errors that may affect your overall score.

A couple of personal finance websites like NerdWallet, amongst others, offer free credit scores. Look for a website that also offers free educational tools like credit score simulators as well as free credit report information.

There are also a couple of credit card issues that allow online access and print FICO scores on their customer’s monthly statements. Some even go above and beyond by offering free scores to anyone in need of them – cardholder or not. Capital One offers free VantageScore on its CreditWise website while Discover offers free FICO scores on


Jordan Adney is a famous credit card guru whom has been working in the financial fields for 25 years. His knowledge of how to manage your finance, credit card and all about the financial laws is extensive.

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