How to build credit

How to build credit


Your credit score impacts nearly every area of your personal finances. It comes into play when you’re applying for a loan, opening a credit card, signing up for insurance, renting an apartment, or sometimes even applying for a job.

If you have poor credit or haven’t paid much attention to your credit in the past, there’s still time to turn things around. Keep reading to learn tips on how to increase your credit score and how to stay on top of your credit report.

How to use a credit card to build credit

A credit card is one of the best ways to boost your credit and maintain a high credit score — if you use it correctly. If you’re just starting the process of building your credit and can’t qualify for a traditional unsecured card, consider getting a secured card until your credit score goes up.

What is a secured credit card?

A secured credit card is one that requires a security deposit when you sign up. When you apply for a credit card, you’re offered a certain credit limit, usually based on your creditworthiness. But with a secured card, you must provide a deposit equal to the amount of your credit limit.

For example, suppose you’re offered a credit limit of $500 on a secured card. To get that credit limit, you would have to provide a cash deposit of $500.

When you use a secured credit card, you pay your bill monthly, just as you would a regular credit card. The cash deposit serves as collateral for the credit card, so if you spend up to your credit limit and don’t pay your bill, the credit card company will keep your cash deposit.

If you choose to close the card or transition to an unsecured credit card, you’ll get your security deposit back.

How to use a secured credit card to build credit

A secured credit card works and helps you to build credit very similar to how an unsecured credit card does.

First, you’ll use your credit card for spending each month. At the end of the statement period, you’ll get a bill for your minimum payment. You can choose to make only the minimum payment, but then you’ll pay interest on any amount you don’t pay off within the same statement period.

As you spend money on your secured credit card and make on-time payments, you’re showing the credit bureaus you can use credit responsibly. Over time, you’re likely to see your credit score increase.

Another important factor is your credit utilization. The less of your credit limit you use each month, the lower your credit utilization. The lower your credit utilization, the better the impact on your credit score.

Finding the best secured credit cards

There are many secured credit cards on the market, but they aren’t all created equally. Here are a few things to consider when comparing secured cards:

  • Annual fee: Some credit cards charge an annual fee to have an open account. There are plenty of secured cards that don’t charge annual fees, so be wary of signing up for one that does.
  • Interest rate: If you think you may need to carry a balance on your card at any time, the interest rate is important. The higher your interest rate, the more expensive it will be to use your card.
  • Credit reporting: Make sure whatever card you choose reports your payments to the credit bureaus: Equifax, Experian, and TransUnion. Your card usage only boosts your credit if the card issuer reports your activity.
  • Rewards: Cash back and points aren’t quite as common with secured cards as they are with unsecured cards. However, you can still find secured credit cards that offer rewards for your spending.

Transitioning from secured to unsecured cards

The goal of a secured card is to reduce the risk of credit card companies while still offering credit to borrowers with poor credit. And after you’ve had your secured credit card for a while and have managed to boost your credit score, you’ve shown companies you can engage in responsible credit card usage. At that point, you can transition to an unsecured card. You have two options to do this.

First, you can apply for a separate unsecured card to find the one that best fits your needs. The other option is to upgrade your secured card. Many card issuers have the option to upgrade a secured card account to their basic unsecured card.

A benefit of upgrading your card rather than opening a new one altogether is that you’ll still get credit for all your spending history. On the other hand, if you open a brand-new card and close your secured card, you could see a temporary dip in your credit score.

There are plenty of benefits to switching to an unsecured card. For example, you’ll have access to higher credit limits, rewards like cash back or points, and other cardholder perks.

Get a credit-builder product or secured loan

Credit builder loans and secured loans are another way to boost your credit when you don’t have access to more traditional forms of credit. Both help to show lenders you can use credit responsibly while slowly boosting your credit score.

Credit-builder loans

A credit builder loan allows you to borrow money from a financial institution — but not actually access that money. The entire point of the loan is to help you build your credit.

When you’re approved for a credit-builder loan, the money from the loan is deposited into a bank account, often a savings account or certificate of deposit (CD). You’ll make the monthly payments as you would on any other loan. Then, once the loan has been fully repaid, you’ll get the money from the bank account.

In the end, you should see your credit score increase thanks to the history of on-time payments you’ll build up.

The obvious downside to this type of loan is that you have to pay the money upfront. For example, let’s say you get a $1,000 credit-builder loan. You’ll have to make the full $1,000 in payments before you get the money from the loan. As a result, someone living paycheck to paycheck may not be able to make it work.

Many traditional financial institutions don’t offer credit-build loans, but many other online platforms specifically offer this service.

Secured loans for credit building

Another way to build credit is by using a secured loan. A secured loan is a loan that’s backed by collateral, similar to a secured credit card. When you take out a secured credit card, you must pay a security deposit upfront.

A secured loan works a bit differently than a secured credit card because you don’t typically pay a security deposit. Instead, you offer up a piece of collateral that the bank can seize if you don’t make your loan payments. That collateral could be your house, your car, or a bank account.

A secured loan can be beneficial if you actually need to borrow money. Unlike a credit-builder loan, you aren’t paying any money upfront. This type of loan is especially beneficial for someone who has a valuable asset they can use as collateral.

Of course, this type of loan also has some downsides. If you face any sort of financial hardship and can’t make your loan payments, you risk losing the collateral.

Read more: What is an interest rate?

Understanding the co-signer arrangement

As you’re working to build your credit, you may find that you need a co-signer on your loans. Lenders often require a co-signer when the primary borrower doesn’t have good enough credit or income for the lender to feel confident giving them the loan with additional assurances.

A co-signer should be someone with good credit who would be able to qualify for the loan on their own. A good credit score and low debt-to-income ratio show the lender they’re able to make the payments if you can’t.

When someone co-signs a loan with you, they take as much responsibility for the loan as you do. While they may not be the ones making the monthly payments, they have just as much on the line. And if you can’t make the monthly payments, they must do so.

A primary borrower and co-signer both face the same risks. If you fail to make your loan payments, the late or missed payments will appear on both of your credit reports, and you’ll both see your credit scores decline. As a result, it’s important that you only ask someone to co-sign a loan for you if you feel confident you’ll be able to repay it.

Understanding authorized user status

An excellent way to boost your credit score is to become an authorized user on someone else’s credit card. An authorized user is someone who the primary cardholder adds to the account and who is able to use the card or get their own card attached to the account.

When you’re added as an authorized user on someone’s credit card, that account is added to your credit report. You’ll get credit for the payment history, credit length, and credit utilization. And if you don’t have a positive payment history or have a thin credit file, becoming an authorized user can have a major impact on your credit score.

It can be especially beneficial if your poor credit prevents you from getting your own credit card since you don’t have to go through a credit check to become an authorized user.

If you’re considering becoming an authorized user on someone else’s account, make sure that person uses their card responsibly. Just as being an authorized user can benefit you, it could also harm you if the primary cardholder doesn’t make their payments on time or maintains a high credit utilization.

You don’t necessarily have to possess or use the credit card. In fact, depending on your spending habits, it might be best for everyone involved if you don’t. But if you do use the card, make sure to do so responsibly and discuss payment arrangements with the primary cardholder.

Get credit for the bills you pay: building your credit history

You probably make on-time payments every month that could show creditors you use money responsibly. Unfortunately, most monthly payments aren’t reported to the credit bureaus and don’t help you improve your credit score. However, there are some newer services on the market that can give you credit for the bills you pay each month.

There are several benefits to using one of these services. First, if you’ve struggled to make on-time debt payments in the past, having your monthly bills reported to the credit bureaus — as long as you pay them on time — can help improve your credit report and score.

Additionally, some people may have a thin credit file because they’ve never had a loan or credit card. It’s not that they have poor credit — they just don’t have enough credit for lenders to know if they use money responsibly. These services can help increase your credit file and make you more creditworthy.

Rent-reporting services

There are free and paid services that, once you sign up, will report your monthly rent payments to some or all of the credit bureaus. These rent payments will appear as on-time payments on your credit report, just as loan or credit card payments would.

First, Fannie Mae has a pilot program that allows certain multifamily property owners to share rental data with credit bureaus.1 The program is free for the renters and puts the responsibility on the landlord to report the payments.

There are other services that tenants can sign up for to have their monthly rent payments reported. Some popular programs include:

  • Piñata
  • Rent Reporters
  • Rental Kharma
  • LevelCredit

Experian Boost

Experian Boost is a free program designed for people with little or no credit history or those with poor credit. This free program allows people to get credit for their on-time monthly bills, including utilities, rent, streaming services, internet, and more.

The major downside of Experian Boost is that it only affects your Experian credit file. If you apply for a loan or credit card with a lender that uses Equifax or TransUnion instead of Experian, the program won’t help you.

Good credit habits

Perhaps the best and longest-lasting change you can make to improve your credit is to maintain good credit habits. These habits will help you increase your credit score in a relatively short amount of time and maintain a good credit score moving forward.

Making timely payments

Your payment history is the most important factor that makes up your credit score. It accounts for 35% of the calculation for your FICO score.2 Paying your bills on time each month will result in a good payment history.

On the other hand, making late payments — or missing your payments altogether — will harm your payment history and your credit score. In fact, FICO data indicates that missing a payment by 30 days can bring down your credit score by more than 80 points while missing a payment for more than 90 days can bring down your score by more than 100 points.3

And unfortunately, the better your credit score to begin with, the more of a negative impact a single missed payment can have.

Managing credit utilization

Your credit utilization is the portion of your revolving credit limit that you’re using. For example, if you have a credit limit of $1,000 and you have a balance of $500, you have a credit utilization of 50%. This applies whether the $1,000 limit and $500 balance are on a single credit card or spread out across multiple cards.

Generally speaking, the lower your credit utilization, the better. According to Experian, it’s recommended to keep your credit utilization below 30%.4 Additionally, your credit utilization makes up 30% of your credit score, meaning a high utilization can have a major negative impact on your score.2 Likewise, bringing down your utilization can have a major positive impact.

Responsible credit applications

When you apply for new credit, whether it be a credit card or loan, it appears on your credit report as a hard inquiry. New card inquiries can have a small and temporary impact on your credit report. But many applications close together can be a red flag for lenders. It shows that you’re trying to open many new lines of credit.

There are ways to avoid getting new credit without it having too big an impact on your creditworthiness. First, if you’re shopping around for a specific type of loan, you can apply with multiple lenders close together. Credit bureaus understand that people rate shop for loans, so multiple inquiries in a short amount of time for the same time of loan are treated as a single inquiry.

Another way to avoid new inquiries negatively impacting your credit is to do your research ahead of time. Doing plenty of research upfront can help you reduce the number of applications you must complete.

Finally, consider spacing out unrelated credit inquiries. Suppose you need to apply for both a new car loan and a new credit card. Do your car loan rate shopping at one time so you only have a single inquiry on your credit report. Once you’ve gotten your car loan, wait several months before applying for your credit card.

Maintaining open credit card accounts

Many people assume that having as few as possible accounts on their credit report is best for their credit score, but that’s actually not the case. In fact, closing out an account can have the opposite impact and hurt your credit score.

There are several reasons closing an account can hurt your credit score. First, the payment history on a closed account has less of an impact on your credit. Closing an account can also reduce your credit history length, which makes up 15% of your credit score.2

Finally, closing a credit card can hurt your credit utilization. Your total credit limit goes down, meaning any balance you carry will have a greater impact.

Rather than closing a credit card account, there are alternatives you can use. Even if you no longer use the card, you can keep it open (though you may want to use it occasionally to ensure the card issuer doesn’t close it). If you’re paying a fee on the card and no longer want to, call the card issuer to see if you can downgrade the card to a fee-free card.

Check your credit scores and reports

The more aware you are of what’s going on with your credit report and credit score, the more proactive you can be in making positive changes.

Understanding credit scores and reports

First things first, it’s important to understand exactly what your credit report and credit score are. Your credit report is a record of your credit usage. It includes all of your debt accounts, your monthly balances, and your payment history. It also indicates any delinquent or defaulted accounts.

Your credit score is a three-digit number that’s based on the information on your credit report. These scores range from 300 to 850; the higher the number, the better.

Your credit score is important for many reasons. First, it determines whether you’re likely to have access to new credit. Creditors see credit scores as predictive of how you will use debt. A poor credit score indicates you may not make your payments on time.

Your credit score also impacts the interest rate you can borrow at. The lower your credit score, the higher the interest rates you’ll get on new debt accounts. Ultimately, those debts end up costing you more money.

Accessing free credit scores and reports

Today it’s easier than ever to stay up to date on what’s happening with your credit report and score. And the best part is you can do it for free.

The federal government guarantees that each person can access their credit report for free at least once per year.

There are also plenty of free ways to access your credit score. Free services like Credit Karma allow you to check your credit score at any time and will alert you to changes. Many credit cards now offer a similar service, where you’ll have credit card monitoring when you have an account.

Requesting and reviewing credit reports

One way to access your full credit report from each credit bureau is with To access your credit reports, you’ll complete a short form, indicate which credit reports you want, and then will be able to view them online or download or print them for later.

Knowing what’s on your credit report is vital. First, when you know what’s on your credit report — especially the negative things — you can take steps to address it. You can get an idea of what to prioritize and which accounts need your immediate attention. You may even find delinquent accounts you didn’t know about.

Another reason it’s important to know what’s on your credit report is that you can look out for errors and discrepancies that could be harming your credit score.

Disputing credit report errors

A 2021 study by Consumer Reports found that more than one-third of consumers have errors on their credit reports.5 Those errors could be as minor as an incorrect address. But they could be as serious as a defaulted account that isn’t really yours.

If you find an error on your credit report, you can dispute it with one or all of the credit bureaus. All three credit bureaus now have an online dispute process.

Once you’ve disputed an item on your credit report, the credit bureau is required to investigate it. The responsibility is on the creditor to prove that the information in the report is correct. If they fail to do so, the credit bureau will have to remove it from your credit report.

1 Fannie Mae, “Fannie Mae Launches Rent Payment Reporting Program to Help Renters Build Credit,” September 2022.

2 myFICO, “What's in my FICO® Scores?”

3 myFICO, “The Changing Score,” 2019.

4 Experian, “What Is a Credit Utilization Rate?” November 2023.

5 Consumer Reports, “Consumer Reports Investigation Finds More Than One-Third of Consumers Found Errors in Their Credit Reports,” June 2021.


Alex Graesser, CFP®, ChFC®


Alex Graesser is a Senior Financial Professional at Empower. A Certified Financial Planner (CFP®) professional and Chartered Financial Consultant (ChFC®), he is responsible for developing enduring relationships with his clients by providing expert guidance for a lifetime of financial security.

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