Everything You Need to Know About Building Credit

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Having good credit can help you buy a car or home, finance your education, and sometimes, even get a job. But in order to build credit, you first need to open lines of credit, then you must follow best practices, such as making payments on time, keeping your balances low, and keeping your accounts open. It's also wise to learn about common mistakes to avoid when building credit.

Opening Lines of Credit

The first step to building credit is to actually open one or more lines of credit. Getting credit for the first time can be tough since banks and credit card issuers will check your credit to approve your application, and a lack of credit history may lead to rejections. You can look for credit cards geared toward students or first-time borrowers, or you can consider other options for getting credit for the first time.

Apply for a Secured Credit Card

Credit card issuers are more likely to approve new borrowers for secured credit cards because they eliminate some of the risk. Secured credit cards require you to make a security deposit against the credit limit. The creditor holds that deposit as collateral and refunds it either when you close the account or it's upgraded to an unsecured account.

Get a Retail Store Credit Card

Retail credit cards often have less-strict credit requirements. As a new credit consumer, you'll have a better chance getting approved for a retail credit card than other types of major credit cards.

Be aware that retail credit cards typically have low credit limits and high interest rates, and can only be used in a specific retail store. If you go this route, keep in mind that you're using this card to help you build credit—not to go on a shopping spree at your favorite store.

Ask Someone To Make You an Authorized User

Becoming an authorized user on someone else's credit card account can help jumpstart your credit if the credit card issuer reports the account to one of the major credit bureaus. Verify the account is in good standing, doesn't have a high balance, and doesn't have a history of late payments. Otherwise, the negative account history will hurt, not help your credit score.

Get a Co-signer for a Credit Card or Loan

A co-signer who has good credit can apply with you to improve your chances of getting approved. But keep in mind that co-signers have joint liability for the account. That means late payments on the account will affect the co-signer's credit too.


Since 15% of your credit score is based on the the length of your credit history, it's important you leave your accounts open for as long as possible when trying to build your credit.

Best Practices for Building Credit

Following a few straightforward guidelines will help you build—and keep—a good credit score.

Start With One Credit Card

Applying for several credit cards in a short period of time leads to too many inquiries into your credit, which can hurt your credit score. Not only that, but having too many new accounts at one time can negatively affect your score, as well. It's best to only apply for the credit you need and to learn how to be responsible with credit before you apply for additional accounts.

Make Payments on Time

Payment history is the biggest factor that affects your credit score. Make all your debt payments on time each month to build a good credit score. The more on-time payments you have, the more your credit score will improve. You can ensure timely payments by setting up automatic bill pay or signing up to receive payment reminders.

Watch Your Account Balances

Another factor that affects your credit score is credit utilization, or how much credit you're using compared to your overall limit. Keeping your balance below 30% of your total credit limit is best for building credit—and the lower the better. Your credit score will start to drop once you reach 30% utilization.

As a rule, you should never borrow more than you can afford to pay each month. Ideally, you should ideally pay your balance in full each month. This prevents you from carrying too much debt and accumulating interest on your balance.

Building Credit Without Cards

  • Since your credit score is based on how well you handle your debt obligations, building credit requires you to borrow money in some form—and it doesn't necessarily need to be through credit cards.
  • You can build good credit by taking out a small loan and paying it back on time. Generally, loans borrowed from a major bank or credit union will help you build your credit score.
  • Payday loans, however, are not reported to the credit bureaus and do not help you build credit. You should avoid these kinds of loans altogether, as they're also expensive and predatory.

Mistakes To Avoid

It's much easier to build a good credit score than it is to repair your credit once it's damaged. As you're working to improve your credit, there are some things you should avoid.

Paying Late

Once negative information like late payments or debt collections, is on your credit report, it will stay for up to seven years. You'll have to work even harder to overcome the damage done to your credit. Pay all your bills on time to keep negative accounts off your credit report.

Letting Your Credit Card Go Unused

You must have at least one account active for the past six months to have a credit score. If you fail to use your credit cards, not only will it affect your credit score, your credit card issuer may cancel your account. Use your credit card at least once every few months to keep it open and active.

Borrowing More Than You Can Afford

Having too much debt can hurt your credit score, particularly as part of your credit score is based on how much debt you're carrying. The other problem with borrowing more than you can afford is that it can lead to more serious problems such as foreclosure, repossession, or even bankruptcy.

Not Checking Your Credit

The best way to take ownership of your credit is to check your credit report and score periodically. Checking your credit score helps you know where you stand, but it doesn't give you the complete picture. You should also check your credit report to verify that the information in is accurate—any errors or fraudulent activity could affect your credit score. If you do find errors on your credit report, you can dispute them with the credit bureau to have them removed.


The Fair Credit Reporting Act requires each of the three major credit reporting companies—Equifax, Experian, and TransUnion—to give you a free copy of your credit report once a year. However, you must request it. You can do so at AnnualCreditReport.com.

Tracking Your Progress

While your credit report holds all the information about your credit history, your credit score is the best way to measure your progress in building your credit.

Your credit score is a numerical summary of the information in your credit report at a specific moment in time. It's the number creditors and lenders use to help decide whether to approve your applications and what interest rate to charge you.

You can monitor your credit score regularly to see how it changes as time passes and timely payments are added to your credit history. This is different from getting free annual copies of your credit reports. To check on your score, you can sign up for a paid credit-monitoring service through your bank or lender, or use free sites such as Credit Karma and or Credit Sesame.

There's no way to predict how long it will take you to build a good credit score. When you're first starting out, you'll need to have your first account open and active for at least six months before your credit score can be calculated. After that, it's just a matter of adding months of positive payments to your credit report.

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The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
  1. Consumer Financial Protection Bureau. "3 Common Credit Issues and What You Can Do To Fix Them."

  2. Debt.org. "Secured Credit Cards."

  3. Consumer Financial Protection Bureau. "Six Tips To Consider When You’re Offered a Retail Store Credit Card."

  4. Experian. "Will Being an Authorized User Help My Credit?"

  5. Federal Trade Commission. "Co-signing a Loan."

  6. myFICO. "What's in My FICO® Scores?"

  7. Consumer Financial Protection Bureau. "How Do I Get and Keep a Good Credit Score?"

  8. Federal Trade Commission. "Payday Loans."

  9. Experian. "How Long Do Late Payments Stay on Credit Reports?"

  10. Experian. "Inactive Credit Card: Use It or Lose It?"

  11. Federal Trade Commission. "Disputing Errors on Credit Reports."

  12. Federal Trade Commission. "Free Credit Reports."

  13. Consumer.gov. "Your Credit History."

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