How to Build Credit Over Time

Cathryn Collins

Writer

If you don’t have a credit score, but you want to learn how to build credit, you’re not alone. Data from the Consumer Financial Protection Bureau shows around 26 million adults in the United States are credit invisible, meaning they don’t have a credit score at all. Another 19 million Americans do have a credit history, but there isn’t enough information on it to create a credit score. 

Establishing good credit is beneficial in many ways. It can help you qualify for lower interest rates on large purchases like homes and cars and can even save you money on insurance costs in certain states. 

Of course, building your credit history might seem overwhelming at first. After all, there’s a lot to consider, like which credit card to get first, learning how your credit score works, and figuring out how to build credit as you go. But, if you learn a few key principles when it comes to credit, you’ll be well on your way to building your credit, which can help contribute to financial success down the road.

How does credit work?

Think of credit as a relationship. It’s the relationship between you and your lender. Like any good relationship, if you maintain good credit habits and keep your promises (like making on-time payments), your lenders are more likely to extend more credit, i.e. increase your credit limit. However, if you break promises, like paying your bills late, your lenders report that to the credit bureaus, which can hurt your credit profile.

Your credit reports are a record of your current and past credit behavior. Building a good credit history is like building your reputation among banks and creditors. When you want to buy a car, a lender will look at your credit reports to understand your credit history. If your credit reports show you pay you make on-time payments on your accounts, you’re more likely to have high credit scores and get a competitive interest rate. Having several adverse accounts and missed payments classifies you as a riskier borrower, potentially resulting in higher interest rates.

It takes time to build your credit history. Just like moving to a new town or starting a new job, at first, you have a blank slate. Then, you build your reputation with colleagues over time. Your credit report is similar. You start with a blank slate, and each time you get new credit, it’s an opportunity to prove you have good credit habits and will maintain a positive payment history.

What goes into your credit score?

Several factors go into your credit score. The most widely used credit score is FICO. Here is how FICO calculates your score.

  • 35%: Payment history
  • 30%: Amounts owed
  • 10%: Credit mix
  • 10%: New Credit
  • 15%: Length of credit history

The most important part of your score is your payment history because it makes up the largest percentage of your score. So, on-time payments on your accounts each month are vital to having a good score.

The amount of debt you owe in relation to the amount of credit you have is called credit utilization and accounts for 30% of your score. So, if you carry a high balance on your credit cards or max out your credit limit, it can negatively affect your credit score.

The length of your credit history takes time to build, but it is only 15% of your score. Your credit mix represents the different types of credit you have, like a home loan, car loan, or credit card. Lastly, new credit is 10% of your score. If you apply for many new credit cards at once, for example, that’s seen as a red flag. So, apply for new credit sparingly and space out your applications.

Related: What is a good credit score?

How to build credit?

Now that you know how credit works and the factors that make up your credit score, here are a few ways to build your credit over time.

Get a starter credit card

If you don’t have any credit at all, a good first step is to get a starter credit card. You can find one by searching for a starter credit card, credit builder credit card, or student credit card. Look for a credit card with no annual fees so you don’t incur additional costs.

Every time you pay your credit card bill on time, your credit card company reports your payment to the credit bureaus. This reflects positively on your ability to handle credit. Over time, this will help you to build your credit history and increase your credit score.

These cards typically have low credit limits to start, so it's important to stay on top of your credit utilization. It's a good goal to keep your credit utilization below 30% of your total available credit. For example, if you get a starter card with a $500 credit limit, it's best to only charge purchases up to $150 before paying them off.

Keep in mind, if you are late on a payment, your credit card company will report that too, which will have the opposite effect. When in doubt, make sure to schedule automatic payments of at least the minimum payment so you’re not late. Preferably, pay off your entire card balance in full at the end of each month.

Get a secured credit card

When you're just starting out with credit and don't have much or any credit history, it can be hard to get approved for a regular credit card. One option is to get a secured credit card.

Secured credit cards require a cash deposit to secure the credit. Often, the amount of your credit limit is equal to the amount that you deposit, but some secured credit cards will offer a higher limit in certain circumstances.

The process for building your credit with a secured credit card is the same as with a starter credit card. Keep your credit utilization ratio low and ensure you make on-time payments each month. This will demonstrate to lenders that you are responsible with credit and help build a positive payment history.

Become an authorized user

Another way to build credit is to ask a family member if they’ll add you as an authorized user on their credit card. When someone adds you as an authorized user, you’re essentially piggybacking on their good credit. 

It’s important to openly communicate with your friends or family members about their expectations of you as an authorized user. For example, some family members or friends will give you the card that arrives in your name, and others won’t. You don't need to actually use the credit card to benefit from being an authorized user. Simply being listed on the account will allow you to benefit from the main account holder's good payment history and responsible credit behavior.

Keep in mind that this cuts both ways. Most credit card issuers will report both positive and negative credit behavior for authorized users. So if the main account holder has poor credit behaviors, your credit reports and credit scores may be negatively impacted.

If someone allows you to be an authorized user to help improve your credit, it’s important to treat their credit responsibly. They are ultimately responsible for paying off the account, not you. If you purchase something using the card, be sure to pay them back promptly. Being an authorized user of someone’s card is a privilege and something that can help you expand your credit reports and improve your credit scores.

Happy woman holding her card and laptop: Guide on how to build credit over time.

Use a score-booster service

There are several companies you can utilize to help boost your score, especially if are new to building your credit profile.

Experian Boost

Experian is one of the three main credit bureaus and created Experian Boost to allow consumers to get credit for paying their regular monthly bills on time. For example, if you pay your Netflix bill every month on time, you can get a “boost” for that. 

It’s a free service, too. You do have to give Experian access to your bank account, so it can scan for on-time bills to add to your Experian credit report.

RentReporters

For a long time, renters haven’t been able to enjoy the credit perks of paying rent on time. When you have a mortgage, your bank reports on-time payments to the credit bureaus. However, landlords don’t typically report rent payments. That’s where RentReporters helps. 

RentReporters requires landlord verification, but once your landlord shows you paid your rent on time, the service reports your rent payment to credit bureau TransUnion. The downside is that it’s not a free service. There is a one-time enrollment fee plus monthly fees to use the service.

UltraFICO

As mentioned previously, your FICO score is one of the most widely used credit scores. The team behind FICO created UltraFICO, which is a free service that helps you build credit based on your daily bills. 

UltraFICO works similarly to Experian Boost in that you have to give UltraFICO access to your accounts. The service then reviews your accounts and gives you credit for positive account balances and other financial habits.

FAQs

How long does it take to build a good credit score?

The time it takes to build a good credit score varies from person to person. Because your credit score depends on many factors, it’s hard to predict how long it will take to build good credit. Generally, you can build a good credit score by applying for credit cards, paying your bills on time, and allowing the length of your credit history to grow. It can take several months to several years to build a solid credit history, depending on your personal situation.

What is a good credit score?

According to FICO, a good credit score is one that is between 670-739. A very good score is 740-799, and an exceptional score is 800+. Scores below 580 are considered poor, and scores 580-669 are fair.

Does carrying a balance on credit cards build your credit?

No, carrying a balance on your credit cards does not build your credit. This is a common misconception that many people still believe. Ideally, it’s best to pay off your credit card in full every month. If you do have to carry a balance, make sure to keep it at less than 30% of your available credit to avoid hurting your credit score.

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Author picture

I'm an award-winning lawyer and personal finance expert featured in Inc. Magazine, CNBC, the Today Show, Business Insider and more. My mission is to make personal finance accessible for everyone. As the largest financial influencer in the world, I'm connected to a community of over 20 million followers across TikTok, Instagram, YouTube, Facebook and Twitter. I'm also the host of the podcast Erika Taught Me. You might recognize me from my viral tagline, "I read the fine print so you don't have to!"

I'm a graduate of Georgetown Law, where I founded the Georgetown Law Entrepreneurship Club, and the University of Notre Dame. I discovered my passion for personal finance after realizing I was drowning in over $200,000 of student debt and needed to take action-ultimately paying off my student loans in under 2 years. I then spent years as a corporate lawyer representing Fortune 500 companies, but I quit because I realized I wanted to have an impact; I wanted to help real people and teach them that you can create a financial future for yourself.

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Our aim is to help you make financial decisions with confidence through our objective article content and reviews. Erika.com is part of an affiliate sales network and receives compensation for sending traffic to partner sites, such as MileValue.com. This compensation may impact how and where links appear on this site. This site does not include all financial companies or all available financial offers. This in no way affects our recommendations or article content.

Advertiser Disclosure

Our aim is to help you make financial decisions with confidence through our objective article content and reviews. Erika.com is part of an affiliate sales network and receives compensation for sending traffic to partner sites, such as MileValue.com. This compensation may impact how and where links appear on this site. This site does not include all financial companies or all available financial offers. This in no way affects our recommendations or article content.

Advertiser Disclosure

Our aim is to help you make financial decisions with confidence through our objective article content and reviews. Erika.com is part of an affiliate sales network and receives compensation for sending traffic to partner sites, such as MileValue.com. This compensation may impact how and where links appear on this site. This site does not include all financial companies or all available financial offers. This in no way affects our recommendations or article content.