How to Build Credit: Step-By-Step Guide for Beginners

If you’re wondering, “How can I build my credit?” read on for the most common methods for building or improving a credit score.

1. Open a credit card to build credit fast 

The best way to build credit is with responsible use of a credit card. However, it can be tough to qualify for an unsecured credit card if you don’t have a credit history. That’s where a secured credit card or student credit card comes in. 

Secured credit card

When you open a secured credit card to build credit, you’ll make a cash deposit that equals your credit limit – so if you put down $300, your card limit is $300. If you default on the card, the issuer keeps your deposit, which reduces their risk.

You can use a secured credit card to pay for everyday purchases, like groceries, gas, or utility bills. Paying off the card in full each month can help you with creating credit history. 

Once you’ve strengthened your credit, you can move on to a traditional unsecured credit card that doesn’t require a deposit. 

Student credit card

Student credit cards are designed for students who have little or no credit history. Similar to other credit cards, they offer a revolving line of credit, though your credit limit may be lower. 

You typically must be at least 18 to apply, and some lenders require that you’re enrolled in college or trade school. If you pay back your balance each month, you can avoid interest charges. Your card issuer will report your activity to the credit bureaus, which could help you build credit over time. 

2. Build credit by becoming an authorized user

Consider asking a trusted friend or family member with a strong credit history if they would be willing to add you as an authorized user to their account.

As an authorized user, you can make purchases with their card as your own and have the account’s payment activity appear on your credit report. Be aware that all account activity on the card will be reflected in your credit report, regardless of whether the activity is positive or negative.

3. Add variety with a credit-builder loan 

Another strategy for how to build up credit is a credit-builder loan. It’s designed to improve your credit score, even if you have no credit or a limited credit history. You won’t need proof of good credit to be approved – you’ll just need to ensure you can afford the monthly payments.

A traditional loan provides a lump sum of cash that you repay to the lender over the specified loan term. With a credit-builder loan, you don’t get any money up front; instead, you make monthly payments for the agreed-upon loan term and get the cash at the end of the term (plus any accrued interest). 

As long as you continue to make timely payments, your credit score should increase. Plus, you may appreciate the savings cushion you’ve built along the way.

4. Pay your bills and loans on time

Paying your bills on time should be your top financial priority for improving your credit score. Here are some ways to ensure your accounts stay up-to-date and in good standing:

• Set up automatic payments for the minimum amount due every month to ensure you won’t miss a payment.
• Address missed payments as soon as you can.
• Stay on top of other accounts, including gym memberships and subscription services, to prevent them from being sent to collections and negatively impacting your credit.

5. Keep your credit utilization below 30% 

Your credit utilization ratio is the amount of credit you’re using compared to what’s available to you. Let’s say, for example, that you have a balance of $2,000 on a credit card with a $4,000 credit limit. In this case, your credit utilization is 50%. 

Try to keep your credit utilization below 30% to protect your credit score. You can lower your credit utilization by paying down your balances, consolidating them with a debt consolidation loan, or requesting a higher credit limit. 

If you’ve been using your card responsibly, your credit card issuer might agree to increase your limit. If your card’s limit increased from $4,000 to $6,000, for instance, your credit utilization would decrease to 33% with that same $2,000 balance.  

6. Treat your credit card like a debit card 

Using a credit card wisely can help as you’re considering how to start building up credit, but be careful not to overspend. Your safest bet is to treat your credit card like a debit card. 

Only charge what you already have the cash to cover and can pay back in full each month. Avoid carrying a balance from month to month, as that will rack up interest charges and potential late fees.

Carrying a high balance will also increase your credit utilization, which could hurt your score. And late payments would damage your payment history, the most important factor in your credit score. 

Using your card for small, predictable expenses and paying it off as you go can help improve your credit and keep you out of debt. 

7. Build credit with everyday bills 

If you lack credit history but always pay your rent and utility bills on time, consider using a rent-reporting service to add that information to your credit reports.

By linking your account, you can add on-time payments for rent, phone, and utility bills to your credit report and build a positive payment history.

Knowing the top factors that impact your credit score empowers you to work toward boosting yours. As you consider, “How do you build credit?” here’s what you need to know.

Payment history: 35%

Your payment history has the most significant effect on your credit score. If you consistently pay bills on time, your credit score will increase. Conversely, your credit score will drop if you often miss or make late payments.

Remember, late payments can stay on your credit report for up to seven years. Schedule automatic payments or add payment reminders to your calendar to help you pay your bills on time.

Amounts owed: 30%

The amount you owe compared to your total credit limit has the second-largest effect on your credit score. Keep your credit utilization (the amount you owe divided by your total available credit) below 30%.

For example, if you have $10,000 available credit across several credit cards and lines of credit, you shouldn’t use more than $3,000.

Length of credit history: 15%

The third most influential factor on your credit score is the length of your credit history, which is calculated using:

• The ages of your newest and oldest accounts
• The average age of all your accounts
• The length of time since you opened your last accoun

The longer your credit history, the better your credit score will be. Keeping old accounts open, even if you’re not actively using them, and avoiding the opening of new accounts too often can help increase the average age of your accounts.

Credit mix: 10%

There are two main types of credit: revolving credit and installment loans. Revolving credit includes credit cards and other lines of credit, while installment loans include mortgages, auto loans, and student loans.

Having a healthy mix of both can boost your credit score. If you only have credit cards, consider taking out a loan to improve your credit mix.

New credit: 10%

Credit bureaus see new credit applications as risky financial behavior – mainly if you apply for several loans or lines of credit quickly. Avoid applying for new credit unless absolutely necessary to limit credit inquiries.

Having good credit can make your life easier in a variety of ways. Not only will it unlock financial opportunities, but it could also impact your insurance rates, job search, and ability to rent an apartment. 

Here are some key benefits of having strong credit: 

• Lower interest rates on credit cards, auto loans, and mortgages
• Easier approval for apartments and rental homes  
• Higher credit limits and better card rewards
• Cheaper insurance in many states
• Utility deposits waived or reduced
• Some employers consider credit during hiring for certain roles

Building credit doesn’t happen overnight. It can take several months or more, depending on your financial habits and spending patterns. However, with consistency and dedication, you’ll begin to see changes in your credit score.

If you’re new to credit, expect to see your first credit score appear after six months of reported activity. Making on-time payments and keeping your credit utilization low can show improvement in your score within a few billing cycles. 

Building your way to good or excellent credit typically takes six to 24 months of consistent habits. Remember, patience pays – staying consistent can improve your score and prevent it from dropping. 

The effects of positive financial behavior will compound, while any negative marks, such as late payments, will fade with time. 

Building credit doesn’t happen overnight. However, by learning how to raise your credit score by paying bills on time, using a secured credit card, and closely monitoring your credit report, you can unlock better loan terms, lower credit card rates, and more attractive perks and rewards.

Learn how Chime Card can help you establish a credit history and achieve your financial goals faster.