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How To Build Credit

Miranda Crace6-Minute Read
UPDATED: July 26, 2023


Learning how to build credit and establish a winning credit score are two of the most important financial skills that you can master.

Whenever you seek to borrow money, it’s a safe bet that your credit history (effectively a record of your borrowing history and repayment habits) will come into play.

If you have a long history of making payments on time and successfully building and managing your credit, your credit score will be higher. A higher credit score can grant you access to more lending opportunities, and more favorable credit card or loan terms and rates.

Are you a safe bet to lend money to? Let’s understand the importance of your credit report and how keep positively building upon your credit to live an ongoing, financially stable life.

The Importance Of Building Credit

Maintaining good credit is critical to maintaining good financial health. If you’re lacking a well-established credit history, have never taken out a credit card or loan before, or have missed payments and failed to comply with repayment schedules in the past, then your credit may look limited.

Those who have yet to build credit, or have a lower credit score, may find themselves being denied loans or credit cards outright, or may be subject to less-favorable terms and rates to pick from. Many apartment buildings, home mortgage providers and landlords may look to your credit score when determining whether they’re comfortable allowing you to rent or purchase a home.

Bearing this in mind, you’re no doubt wondering what’s the best way to begin building credit history – and establish credit with or without a credit card – especially if you have yet to get started? The simple answer is to kick-start the process as early as possible. Building and improving your credit history takes time, making it doubly important to begin firming up your credit history long before you need access to borrowed funds.

Following, you’ll find a variety of handy hints, tips and strategies that can help give you a head-start as you work to build your credit and establish yourself as a borrower that lenders can trust.

Credit Reports And Credit Scores: How Credit Reporting Works

Your credit report and credit score provide snapshots of how well you’ve been meeting your financial responsibilities, and managing your money, over a given time period. Having a good credit score and clean credit report can help you:

  • Access a greater number of credit cards and loans

  • Enjoy more favorable borrowing and lending terms

  • Make larger purchases, including property and homes

  • More easily obtain equipment, rentals and services

  • Draw upon lines of credit as a safety net

In effect, lenders extend borrowers lines of credit consisting of sums of money which you agree to pay back at prescheduled dates, along with any assessed interest charges or fees. You’re required to pay these bills on time, and in full, according to your payment schedule.

Your credit history – tracked by three major credit bureaus (also known as credit reporting agencies) – summarizes your track record of doing so. It also helps prospective lenders get a sense of your value and reliability as a potential client. 

What You May Find On Your Credit Report

A credit report will often contain personal information such as your name, birth date, Social Security number, previous addresses, and prior employers. It will also include a list of open credit accounts, including the financial institution that has lent you the money, how much you owe them, your credit limit, the total amount of the loan, etc.

On it, you’ll also find information on historical and closed credit accounts, including any missing/late payments or discrepancies, and whether you parted ways with providers in good standing.

You may also find information from public and court records contained within your credit report, and recent inquiries that you made when applying for credit or financing, or queries made by other companies (e.g. potential credit card providers who’ve referenced the report).

If you notice errors or discrepancies on your credit report, be sure to contact the credit bureau immediately to report inaccurate information. Doing so can help you improve your credit, as can paying down large balances and bringing any delinquent accounts current.

Infographic sharing ways to improve your credit score.

Understanding Your Credit Score

A summary of your credit report is snapshot within your credit score. Your credit score is represented as a number that reflects the information in your report, and typically falls between 350 to 850, with a credit score above 700 typically considered good, and above 800 to be exceptional.

These credit scores are used by lenders such as banks, credit card companies and even car dealerships to predict how likely you are to repay borrowed money.

Financial institutions will also use them to make decisions about whether to extend you credit, and what the terms of any offer (including down payments, interest rates, any special discounts or promotions, etc.) will be.

Multiple credit reporting agencies and scoring models exist. Nonetheless, common variables that can impact your credit score in all cases include:

  • Payment histories
  • Credit utilization ratios
  • Balances and total debts
  • Credit types used
  • Number of accounts
  • Length of credit history
  • Public and court records
  • Prior bankruptcies and judgments

How To Build Credit With A Credit Card

Credit cards (small plastic cards that fit in your wallet and link to a lending account) are issued by banks and financial institutions as a method of letting you purchase goods, services and solutions on credit. These monies are scheduled to be paid back by a certain date and are borrowed on a short-term basis at predefined interest rates.

Credit cards are an especially useful tool to build credit, as they can help you quickly establish a consistent pattern of borrowing and repayment. However, it’s also important to keep a close eye on credit card spending and maintain responsible usage of them.

1. Applying For A Credit Card

Several entry-level credit cards generally come with minimal credit history requirements and can help you begin building your credit score from scratch. Simply read on to find out more.

Student Credit Cards

These cards help students and younger cardholders establish a credit history, and often come with special promotional offers, discounts and rewards attached. While student credit cards frequently boast more account restrictions such as lowered credit limits and higher interest rates, they’re a well-established and popular starting point from which millions each year begin building their credit history.

Secured Credit Cards 

Alternately, you may wish to get a secured credit card, which also assists those with little to no credit history. A secured credit card is backed by a cash deposit, and made up-front (often tied to a savings account) with the card’s credit limit set at the total or a percentage of the funds contained in this account. Capable of being used like any other credit card, you can use a secured credit card to make regular charges and payments.

By keeping a zero or low balance and paying your bills each month, you can use a secured credit card to establish your credit history.

Store Credit Cards

Many major retailers, which can issue store-branded credit cards, may also be willing to give those with limited to no credit a chance to borrow money and establish a credit history. While these cards often come with high interest rates attached if you maintain a monthly balance, they may also provide access to special discounts on purchases and offers at the stores where you most often shop.

Traditional Credit Cards

Of course, if you’ve already established a credit history of some kind, many credit cards will also be competing for your business, including those with low-spending limits, which may come with less stringent credit requirements attached.

You can continue to build out your credit by registering for one, making small charges, and paying off your balance in full each month. Doing so offers a handy opportunity to demonstrate patterns of responsible credit card use and payment and establish a successful credit history faster.

2. Become An Authorized User Or Open A Joint Account

Note that if you’re having trouble obtaining your own credit card, you can also build out your credit history by signing up to become an authorized user on another credit card holder’s account.

Conversely, you might elect to open a joint account with another party who has a better or more well-established credit history as well.

It’s not uncommon for a parent to add a child to their account as an authorized user in order to help their kids build out a credit history and get started on the path to financial independence. Likewise, relatives and spouses often sign up together for joint accounts as a way to enjoy more flexible access to money and help build out or expand their shared credit history.

Be advised though: Joint accounts obligate both card holders to repay the balance of any charges made on the card. If balances borrowed are not repaid in timely fashion, both card holders may be subject to penalties, including a negative impact on their credit history and credit reports.

If you are added as an authorized user on an account, that card’s payment history may be added to your own credit history, making it important to only pair up with users who have a history of responsible spending and timely repayment.

3. Request An Increase To Your Credit Limit

Also worth keeping in mind as a side note: If you are a well-established credit card user with credit that is in good standing, another way to help build out your credit faster is to request an increase in your credit limit from your financial provider.

Credit reporting companies often look at how much credit is available to you compared to how much you’re actually using when determining your credit score. In effect, if you can increase the amount of money you’re eligible to borrow in total while keeping your credit utilization ratio low, the better off your credit score will be.

To maximize your credit score, whenever possible, you’ll want to keep this credit utilization ratio (the percentage of your overall credit limit that you’re using) below 30% at all times.

How To Build Credit Without A Credit Card

Of course, there are many ways to build credit in addition to signing up for and utilizing credit cards. That’s because a credit report attempts to provide an overview and summary of how well you’re keeping up with borrowed money and managing any sums that have been lent to you.

As a result, all kinds of loan balances – home, auto, student, etc. – and repayment practices (e.g. utility bills) have the potential to ultimately filter down to your credit report. This makes it especially important to act responsibly when managing outstanding balances and to practice good financial habits.

Some ways that you can build your credit without a credit card include:

Paying Your Student Loans

If you have an undergraduate or graduate college degree, odds are you may have accrued outstanding credit balances in the form of student loan debt. Because credit bureaus track and report these loans, regularly paying your monthly student loan balances on time can help you boost your credit.

However, on the flip side, missing or late payments can also negatively impact your credit scores. As with many bills, you may wish to pay outstanding balances using automatic payment options so that they don’t accidentally get overlooked.

Applying For Automobile Loans  

You can also build your credit by buying a car and making regular on-time payments to your auto loan lender. At the same time, it’s important to note that interest rates and terms associated with these loans can vary, and you should always shop around for the best deal. If you have a limited credit history, you may need help from a co-signer to underwrite and secure payments.

Becoming A Homeowner

If you’re a homeowner who has taken out a mortgage to purchase a home, you can also build out your credit by making timely mortgage payments.

Paying Timely Rent And Utility Bills  

In select cases, you may also establish credit by making regular rent payments and paying off your utility bills. However, not all landlords and utility providers report your payment history to credit bureaus, unless you’ve been delinquent with payment and a collection agency or lawsuit gets used to recover these funds.

If your landlord or provider does not report positive and responsible payment activity, you have two options available: asking your landlord or utility provider to submit a positive payment history to a credit bureau that tracks it, or employing external services (an online search will quickly reveal several) that can help you surface this information.

Researching Secured Loans  

A secured loan functions similarly to a secured credit card, in that you’ll pay an up-front deposit as collateral that can serve as a backup if you default on payments, and that the loan can be used as a way to build up your credit history.

Offered by banks, credit unions and other lenders as a way to help you build credit without taking on significant risk, a secured loan is specifically designed to help you establish and enhance your credit score. Again, as with secured credit cards, you’ll want to confirm with the lender in advance that activity will get reported to a credit bureau before signing up for an account.

Applying For Personal Loans

In need of up-front funds for a dream project or unexpected event? You can also take out a personal loan if you’re looking to build credit or establish a more thorough credit history. As with any loan though, you may find yourself subject to higher interest rates if you have a limited or poor credit history. Be sure to shop around, compare lenders and research which options best suit your individual needs.

Investigating Non-Profit Lenders

Myriad non-profit lenders and charitable organizations now offer low-income borrowers across the nation a ready-made way to obtain funds and financing, even as they work to build out and set up a positive credit history.

These types of institutions not only give access to cost-affordable loans designed to help those with limited resources, but as with many lenders, they also report payment to the credit bureaus, and can help you build out a more comprehensive payment history.

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Establishing Your Credit With No Credit History

Many individuals, especially students and younger audiences, find themselves facing the common challenge of having to figure out how to build their credit when they have no credit history to date. This can bring added financial pressure, especially as the scenario may make it difficult for shoppers to obtain a credit card, loan, vehicle or housing.

What’s more, building up your credit takes time, and establishing a winning credit history may require several months or years of financial activity to successfully amass. Similarly, improving your credit score doesn’t happen overnight, and even making basic changes or updates to your credit report can take 30 to 90 days or more to process.

The single best way to build or enhance your credit is to steadily pay bills on time each month while keeping a close eye on your credit utilization ratio and making smart use of a variety of different credit types.

Nonetheless, you can still build a credit history even without a credit card or significant borrowing activity. To recap, some simple ways to build credit and establish a responsible payment history include:

  • Having a family member or friend with a good established credit history open a joint credit card account with you, add you as an authorized user to their existing account, or co-sign a loan for you. Rocket LoansSM does not currently offer the option to co-sign on loans.
  • Acquiring a secured credit card or applying for a relevant loan
  • Requesting that your landlord and utility providers submit positive payment histories to each of the major credit bureaus
  • Repaying any student, auto or personal loan debt

Ways To Maximize And Improve Your Credit Score

As you go about the process of building a credit history and establishing your credit score, don’t forget the importance of also making a point to exercise healthy financial habits. Several best practices you should follow include:

1. Make All Your Account Payments On Time

This includes utility and medical providers. Unpaid or late bills can impact your credit scores, especially if handed off to a collection agency or court for follow-up, negatively influencing your credit history.

2. Keep Your Overall Credit Utilization As Low As Possible

Ideally, under 30%, (as noted above).

3. Do Not Apply For Multiple Credit Cards, Loans Or Accounts In Rapid Succession

And remember to space these applications out by 3 to 6 months apiece, as credit applications can produce temporary drops in your score. Multiple applications that occur in a short period of time can negatively impact your credit, making it important to be deliberate about any applications that you choose to file.

4. Securely Maintain Open Credit Card Accounts

The longer accounts stay open (even if unused), the more positively it impacts your credit history. Likewise, closing an account can impact your overall credit utilization.

However, as you go about maintaining open accounts, it’s also important to keep a close eye on them and stay alert for fraudulent activity. Open accounts also present a ready target for cybercriminals.

Final Thoughts

As you can see, building credit and establishing a positive credit score can take time. But as challenging as these tasks may seem, a little persistence pays off. The more responsible you are when selecting and working with lending partners, as well as maintaining healthy payment habits, the more successful you will ultimately be at improving and building your credit history.

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Miranda Crace

Miranda Crace is a Senior Section Editor for the Rocket Companies, bringing a wealth of knowledge about mortgages, personal finance, real estate, and personal loans for over 10 years.