How Credit Works

How to Build Your Credit Score

Whether you have no credit history or a long history of good credit, it is important to know and understand how to build your credit score. Regardless of what some may promise, there is no quick, overnight way to achieve a “good” credit score.

Building a solid credit history, improving your reputation with lenders, and increasing your credit score is a process that takes time, diligence, and responsible financial practice.

The key to building your credit score is knowledge and discipline. The more you know about your credit report, such as factors that affect your credit score and healthy habits to improve and build your credit score, the more you stand to benefit in the long run.

Here are a few strategies to help you build your credit.

1. Make on-time payments

Payment history makes up 35% of your credit score, the largest single factor.

Late payments, delinquent accounts, closed accounts, judgements, debt collection, etc. can quickly impact your score and will linger for some time.

Since your credit history is predominantly used to determine whether you can pay back a loan or make payments on a revolving line of credit, late payments can deflate a credit score rapidly.

The best way to counter the effects of late payments is to make payments on time. Over time, prior late payments will disappear.

To help you make payments on time, set up autopay or set calendar reminders for when your bills are due. Be sure to check your bank account to make sure you have enough money in your account to cover any autopays too, or your payment may fail and end up reported late anyways.

2. Check your credit report regularly

Order a credit report from the three credit reporting agencies: Experian, Equifax, and TransUnion. Federal Law allows every American to receive one free credit report each year. To do this, visit

Once you’ve received your credit report, check it closely for accuracy.

Here are some questions to ask yourself as you look over your report:

  • Do all of the past accounts look familiar?
  • Is the payment history correct?
  • Are the recent credit inquiries accurate?
  • Is your address, personal information and job history correct?
If anything looks wrong, follow the instructions on your credit report to dispute charges.

Checking your credit report is important because it can tip you off to any potential identity theft or unauthorized accounts.

If these are left unchecked, fraudulent action could result in major damage to your credit score. The more damage you receive, the harder it is to fix.

3. Take Out a Loan

All credit is not the same. While taking out a loan may seem like an odd solution to build your credit, it may help to diversify your credit portfolio (which makes up 10% of your FICO credit score).

There are various types of credit and having a good mix signals to lenders for what you’re using each line.

One type of credit is installment credit (like a loan).

Installment credit is a set amount of money given to you that you agree to pay over a fixed time period.

Popular examples of installment credit include:

  • Credit builder loans
  • Auto loans
  • Home mortgages
  • Student loans
  • Personal loans
Many of these loans require a hard pull to your credit though, and you may be denied if you have bad credit.

One installment loan option that does not require a hard credit pull is a Self Credit Builder Account.

Credit Builder Accounts are a combination loan and savings program and do not provide up-front money like a traditional loan.

Instead, the loan is placed into an account held by the bank. You make payments, just as you would a normal loan, and when the loan is paid off, then you receive the money (minus interest and fees).

Like the name suggests, this is designed for people looking to establish or build credit, but it also has the advantage of forcing the borrower to save money.

4. Use your credit cards

If you have a credit card or cards, use them regularly (and responsibly). Not using your credit, or consistently paying your card balance down to $0, could be viewed as an inactive account.

On the other hand, only use what you can pay back each month. If you have to carry a balance, many experts recommend you do not carry a balance more than 30% of your credit limit.

This means that if you have a $1,000 credit limit, try not to ever carry more than $300 over to the next month.

In other words, try to use your credit card, keep your balance low, and pay it down regularly, making your payments on time.

Learn more about using a credit card wisely here.

5. Keep old accounts open

Many people look to close old credit accounts, perhaps to remove temptation or because it is no longer needed or used. But closing an account may have a negative effect on your credit score.

When you close an account, your overall credit limit decreases, which may mean your credit usage (a major factor in your credit score) increases.

Before you close an account, understand how your credit score may be impacted. If you can control your spending and limit use, it could be in your best interest to keep the account open. But if it could lead to more debt and payment troubles, or it has a high annual fee, closing may benefit you in the long run.

Length of Credit History is another major factor in your credit score.

When looking at length of credit history, the FICO score will consider a few things: age of the oldest and newest account, average age of all accounts, how long different types (revolving and installment) have been established, and how long it’s been the account has been used.

If you are considering closing an account, take this into consideration, since it may shorten your length of credit history, the average age of your accounts, and reduce your total credit limits.

6. Ask for a credit limit increase

Asking for a credit limit increase could decrease the amounts you owe relative to your total credit limit pretty quickly, which may help your credit score.

However, proceed with caution if asking for a credit limit increase. If your cards are nearly maxed out, this may provide some temptation to add more debt.

Increasing your credit limit is not a guaranteed fix especially if your spending is getting out of control or if you live beyond your means.

7. Become an authorized user

Another way to build your credit is to become an authorized user on someone else card, which could help you benefit from their older (and hopefully positive) account history.

Whether this is a parent or spouse, it should be a mutual agreement with open expectations. And you should always abide by the expectations given to you by the card owner.

Look at it like you are a guest in their credit house. Respect the credit and use it as you are allowed. Financial stress and misuse can cause major relationship tension, and misuse of someone else’s card, even if you are an authorized user, will not only hurt you, it will harm their credit.

But more devastating, it could destroy a relationship.

Learn more about becoming an authorized user here.

8. Find a credit counselor

If you find that financial planning is difficult, you don’t know where to start, you need some extra support, or you seek more advice, you may want to consider a credit counselor.

A credit counselor can help you better manage your money, debt and build a more financially healthy future.

Learn when you might need credit counseling here.

Beware ‘quick’ credit repair

You may have seen ads for companies offering to repair and improve your credit. Many of these companies are legitimate and will take necessary actions to help you repair inaccuracies and create new, better credit habits.

But it’s important to note that these companies do not offer any service that you could not do yourself for FREE.

Credit repair companies often start by looking at your credit report and verifying that all of the information (e.g. lines of credit, inquiries, loans, etc) is correct.

If anything is found to be inaccurate, they dispute the inaccuracy on your behalf and see that it is removed.

In most cases, credit repair will also come with a fee for the service. As mentioned before, you can do any and all of these procedures yourself and for free by contacting the creditors. From disputing inaccuracies to settling a debt, you can call or write the appropriate parties to have these issues resolved. But if you are unsure of the process, prefer to have an expert deal with the creditors, and are willing to spend the money, credit repair can be a viable option.

But beware of some credit repair services. A credit repair service is forbidden by law to take any money before rendering services to you; they should not be asking for money upfront.

Your credit score also has many factors that influence it, so a certain score increase cannot be guaranteed. If you see a credit repair company making promises like these, run for the hills.