How to Build Credit and Boost Your Credit Score

The best way to build credit is with responsible use of a credit card. However, there are also options to build credit without a credit card. The following are the most common methods for building or improving your credit score.

Get a 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 build a positive credit history.

Become 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.

Pay your bills 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.

Request a higher credit limit

If you already have a credit card and have been using it responsibly, consider asking for a credit limit increase. A higher credit limit can decrease your overall credit utilization and boost your score.

Pay credit card balances strategically

There’s more than one way to pay off debt – and if you do it strategically, you could boost your credit score while decreasing your debt. Here are some of the most popular ways to pay off debt:

• The 15/3 credit card payment strategy involves making two payments each month – one 15 days before the credit card statement due date and another three days before the bill is due. This helps keep your credit utilization down around the time creditors typically report to the bureaus.
• The debt snowball method involves making minimum payments on all your debts and allocating any extra to the smallest debt until it’s eliminated. Then you’ll focus on the next smallest debt until you ultimately tackle your largest debt.
• The debt avalanche method focuses on paying off your debt with the highest interest rate first, then working your way down to the debt with the lowest interest rate.

Get a credit-builder loan

A credit-builder loan can help 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 to make 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.

Use a cosigner

A cosigner is someone with a good credit score who vouches for you and promises to take over payments if you default on a loan. Applying for a loan or a rental home with a cosigner can increase your chances of approval – and it can also help build or repair your credit score.

Remember that your financial behavior will also impact your cosigner. If you fail to make your loan payments, both your credit score and the cosigner’s credit score can decrease.

Report rent and utility payments

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.

Monitor your credit report

Monitoring your credit report can help you identify potential errors, allowing you to dispute them quickly before they affect your credit score.

The three credit reporting bureaus – Experian, Equifax, and TransUnion – allow you to check your credit report for free once per week at AnnualCreditReport.com.¹ You may also be able to check your credit score through your bank or a credit reporting service, like Experian or MyFICO.

Don’t worry: checking your credit score won’t lower it, since it’s considered a soft inquiry.

Don’t close old accounts

You might be tempted to close your credit card account when you’ve successfully paid it off. However, it’s better for your credit score if you keep it open for as long as you can.

The length of your credit history and the ages of your different accounts affect your credit score. Typically, a longer credit history results in a higher score. Additionally, leaving a card open – and using it occasionally – helps lower your credit utilization, and that can boost your score.

Knowing the top factors that impact your credit score empowers you to work toward boosting yours. 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.⁴ 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%.⁵ 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 account

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.

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 may begin to see changes in your credit score within 30 to 45 days.⁶

There’s no quick trick to getting and keeping a good credit score. Instead, you’ll need to be consistent with your good financial behavior to build your score and prevent it from dropping. However, it’s possible to get a high credit score if you’re determined and patient.

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.