Loans > How to Build Credit

How to Build Credit

Learning how to build credit can pay off big time for the long-term. Check out this guide to see how easy it really is.

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Updated January 10, 2022

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Want to build up a great credit score? Good news – even if you’re 18 and starting from scratch, there are ways to build credit with almost zero risk. 

Your credit score determines how much you’ll pay for student loans, personal loans, a mortgage, and sometimes, it will affect your job interviews. Credit is important, no doubt – that’s why we made a guide that will help you set up a good credit-building strategy or simply fix your credit if that’s all you need.

Building credit from scratch needn’t be hard or risky. Even if you’re starting from zero, you can get secure credit cards or loans that are specifically designed for people who just want to build their credit. 

Also, you can piggyback off of someone else’s good credit by getting a joint account with them or becoming an authorized user – the options are aplenty! And it’s a good thing too. 

Nowadays, building good credit is more crucial than ever before, in part because the credit bureaus are implementing the so-called “financial resilience index”. Essentially, they will rate how well you’ve dealt with the COVID-19 pandemic and that rating will influence your FICO in the future.

If this sounds complicated, don’t worry. There are only a few main points you need to know to get this right – and we will explain them all quickly right now.

Ready? Let’s get right to it.

What you’ll learn
  • How Building Credit Works
  • Building Credit From Scratch
  • Building Credit with a Credit Card
  • How to Build Credit Without a Credit Card
  • Monitor Your Credit Report
  • How Credit Repair Works
  • Credit Score Factors
  • Protecting Your Credit During COVID-19

How Building Credit Works 🏗️

Your credit rating is completely based on your credit report. Essentially, the 3 major credit bureaus record everyone’s credit-related activities in individual personal credit reports. Then, those reports get scored from 300 to 850 – this score is a reflection of how good your credit report looks and how creditworthy you are.

Logically, if you want to build credit, you need to make sure that your credit report looks like a million bucks – but how do you do that? Easy, just make sure it is filled with positive items and has no negative items. Here’s what this means.

Positive Items ✅

If you make payments on time and keep away from your credit limit, your credit report will fill up with good items after a while. Every action that proves you’ve got your debt under control will be recorded in your credit report – and that will increase your credit score. 

Also, if you’ve been paying off debt on time for years on end, that will look even better in your report. Having a long, successful credit history tells creditors that you’re very responsible – meaning, that you’re a good potential customer. To summarize – pay off everything on time, keep a low credit utilization, and your report will be full of positive items (a.k.a. things that boost your credit score).

Negative Items ⚠️

Every time you miss a payment, push your credit limit to the max, or commit credit delinquency it will get recorded in your credit report. These records are called negative items and they will drive your credit score down until they are removed. 

Most negative factors will remain on your report for the next 7 years, damaging your credit score. Moreover, negative factors like bankruptcies will be there for up to 10 years – so make sure you avoid them if at all possible. All in all, every time you fail to meet an obligation towards your creditors, it gets recorded, and your credit score suffers for a long time.

Temporary Factors ⏰

This is something that shouldn’t worry you much but is good to know. Every time you take out a new loan or open a new line of credit, your credit score will dip. Your score will decrease for a while but will get back up as soon as you start making timely payments for the loan you’ve taken out.

How to Build Credit From Scratch 🌱

Building credit from the ground up is the same as building credit in general. Essentially, you need to prove you can manage debt by taking it out and paying it off in time.

The safest way to do this is to take out secure loans/credit cards and manage them well, but there are other options too. Let’s see what these options are and which one will suit you the best.

How to Build Credit with a Credit Card 💳

So, to increase your credit score, you need to get into debt first. A safe, quick, and easy way to do this is to get a credit card. Why a credit card though?

Well, this will allow you to control how much you borrow on a monthly basis. If you’re responsible, you will always be able to take care of your bills at the end of the month – and that will steadily increase your score.

Never max-out your credit card! Keep your credit utilization below 25% if possible, and your credit will grow much faster. For example, if your card has a $2,000 limit, never use more than $500 – that is, if you want your credit to grow and not stagnate. 

Your credit card provider probably won’t tell you this, but utilizing most of your credit will actually hurt your credit score, so don’t do it. Keeping all this in mind, here are some ideas you might want to try:

  1. Get a credit card – Find a cheap credit card with a low credit limit and use it rarely and reasonably. Credit cards with low credit limits are easy to get even if you don’t have a credit history, so you should have no problem finding something like this. Don’t close this credit card, and it will serve as a credit-building tool for years to come.
  2. Open a secured credit card – If you don’t have a credit history or have a damaged credit, this might be a safer option to build your rating up. A secured credit card is like a regular credit card but it’s tied to your savings account. That way, any missed card payment will get subtracted from your bank account, so you won’t be in danger of making a mistake that will hurt your rating.
  3. Authorized user/joint account – If you open a joint account with someone who has good credit (e.g. a parent), all the good items in their credit report related to that account will also appear on your report. The same is true if you become an authorized user. For example, if the other person makes timely payments for a credit card you’re authorized to use, you will benefit too because your credit report will get a positive item every time a payment is made.
  4. Ask for an increase of your credit limit – If your credit rating goes up enough, you can request a higher credit limit. The trick here is to get a higher limit, but keep your expenses the same.

    For example, if your monthly limit is $1,000 and you use $400 – that means your credit utilization is 40%. However, if your limit is $2,000 and you still use $400, your utilization will go down to 20% which will look a lot better on your credit report.

How to Build Credit Without a Credit Card 🤔

Your credit report is just a testament to how well you manage your debt – and taking good care of a credit card isn’t the only way to prove you’re a responsible borrower. Here are a few ways you can build credit without a credit card.

  1. Handle student loans with care – Student debt is unfortunately very common for all young people with a college degree.  On the bright side, if you manage to pay it off it will reflect on your credit score very well.

    If you have student debt – make paying it off your priority. If you’re still having a hard time with this, maybe you can try consolidating your student debt to make it easier to get rid of.
  2. Get a secured loan – This is similar to a secured credit card. Banks know it’s hard to build credit when you’re just starting up, so they offer secured loans that are specifically designed for building credit.

    This means you can borrow against your bank account balance. That way, you can not miss payments and get into a situation where your credit report will get besmirched by negative items.
  3. Get an auto loan – Nowadays, auto loans are at a historically low point, and since car sales are down 30%, it’s easier than ever to buy cheap. There are better and safer ways to build credit than buying a car, of course, but if this purchase was already in your plan, it can be a good credit-building opportunity.
  4. Get credit where it is due – If you’ve been taking care of your bills on time, that can count towards your credit score too. Utility bills will only appear on your report if you fail to pay them on time, and paying them on time won’t count towards your score.

    However, you can ask your landlord to report your rent payments to the credit bureaus. That way, your rent payments will be listed as positive items in your report and your credit rating will benefit.

💡 What can a high credit score get you? Not only will you see easier approval for loans, you’ll qualify for some of the top low interest personal loans depending on other factors associated with your credit profile.

How Long Does it Take to Build Credit from Scratch? ⏲️

Fortunately, building a good credit score from zero doesn’t take that long. According to Experian, one of the 3 major credit bureaus, 3 to 6 months of frequent credit activity is enough.

After this period, your credit report will have enough items for creditors to calculate your credit rating. At first, this rating will not be super-high – you need at least a couple of years of credit history to get an excellent credit score.

Credit score categories
Credit score categories.

What Credit Score Does Everyone Start With? ✅

If you have an empty credit report, then your score can not be calculated. It’s as simple as that – your score won’t be high or low, it will be incalculable. If you fill up your empty report with positive items, you will jump straight into a 500+ rating – a good basis to build credit up to the “excellent” zone.

How Credit Repair Can Help Your Score 🛠️

First off, you must understand that the big credit bureaus make mistakes. Sometimes, they will make typos or fail to remove negative items from your credit report. This means your credit report might look very bad, not because you’ve done something wrong, but because the bureaus messed up.

Keep an Eye on Your Credit Report – It’s Important ⚠️

For example, let’s say you owe $1,000. The person working on your report might accidentally add an extra zero and suddenly, you owe $10,000!

Well, you don’t really owe $10,000 but it seems that way to lenders. This type of mistake can ruin your credit score if it’s not fixed quickly.

Also, bureaus often fail to remove the debt you’ve already paid off. If this happens, your credit report will make it seem like you haven’t been paying your bills. When errors like this happen, they drive down your credit score – and we don’t want that. 

It especially pays to be careful if you’ve asked for some sort of payment relief or debt forgiveness. People who have signed up for all kinds of relief programs are finding numerous reporting errors in their credit reports. Luckily, there are ways to easily fix these mistakes, and in doing so, increase your score almost immediately.

The first of which involves getting something removed from your credit report. This involves writing a letter to the appropriate agency and pointing out any errors. Beyond this, there are additional methods as well.

How Credit Repair Works 🔧

First, you need to know how to read your credit report and check it to find mistakes. Then you need to send a dispute letter to your credit bureau. This letter should mention all mistakes you found, and also, you need to provide documents (like your paid bills) and send them with the letter as proof that you’ve taken care of the debt in question.

This might take some work, but shouldn’t be a huge problem if you have patience with numbers and keep your bills. If you don’t want to spend time and energy doing this, you can get a credit repair company to do it for you. 

These services will remove errors from your reports but you need to pay them to do so. If this is something you want to secure your credit with, check out our list of top credit repair near you — all of which can be accessed online.

What Makes a Good Credit Score? ☑️

Several factors determine your credit rating. The most important is your payment history – if you’ve been paying everything on time in the past, that will look great on your credit report. On the other hand, missed payments will drive your score down, so make timely payments your priority.

Also, if you only have a few lines of credit, you can’t get to the high scores. As uninspiring as it sounds, you need to get into bigger debt and manage it well to really boost your score. Lenders will only give you large loans if they know you’re used to paying off relatively large amounts of money.

FICO score credit factors
Credit factors that determine your credit score.

Aside from these main factors, there are a few more you should keep in mind. First of all, having a long credit history will reflect well on your score. Also, every time you take out another loan, your score will temporarily drop, but don’t worry – it’s temporary.

How to Protect Your Credit During the COVID-19 Pandemic 🦠

The times have changed and brought with them a pandemic that has already caused us all a lot of trouble and will likely continue to do so. The top priorities now are health and well-being, but it pays to take care of your finances too. 

Credit card default rates have been through the roof, and an increase in commercial loan defaults is on the horizon. That’s one of many reasons why you should prepare for the future and make sure your credit remains intact (or gets better) after the dust has settled down. Here are a few ways to safeguard your credit.

1. Pay all bills on time ✔️

Even though this is especially hard to do right now, it just can’t be helped. Missed payments are what does the most damage to your credit. If you can, cover the minimum amount for all your bills and stash extra cash so you have an easier time paying them off the following month.

2. Ask Your Lenders for Help ✔️

If it seems like you won’t be able to take care of your payments, call your lenders and explain your situation. Nowadays, most lenders will actually delay your payments or temporarily lower interest rates if you need them to.

Lenders helping out their clients is a common sight today, so make sure you check if they can make your life easier too. The same might also work with your utility providers.

3. Keep Vigil over Your Credit Report ✔️

Checking your reports and making sure everything is in order is especially important today. This way, you can detect fraudulent activity and fix reporting errors that can hurt your rating.

You can get your report from the 3 credit bureaus (Experian, Equifax, and TransUnion) from their websites – they provide daily credit reports at the moment, so you can take one out whenever you feel inspired.

4. Consolidate Debt if Necessary ✔️

If you’re having a hard time making ends meet, you can try consolidating your debt. Essentially, this means combining multiple debts into a single debt with favorable terms.

One of the ways to do this is to talk to a credit counseling agency that can advise you and get your lenders to give you better terms. Also, since interest rates are very low at the moment, getting a great debt consolidation loan might be a good idea. Here are a few suggestions for some of the best consolidation loans you can find online today:

Estimated APR

6.99% - 24.99%

Varies (but known to be low)

Loan term

3 - 6 years


Loan amount

$3,500 - $40,000

$5,000 - $100,000

Estimated APR

Varies (but known to be low)

8.99 - 23.43%

Loan term


2 - 7 years

Loan amount

$5,000 - $100,000

$5,000 - $100,000


Estimated APR

6.99% - 24.99%

Varies (but known to be low)

8.99 - 23.43%

Loan term

3 - 6 years


2 - 7 years

Loan amount

$3,500 - $40,000

$5,000 - $100,000

$5,000 - $100,000

5. Budgeting Is Key ✔️

If possible, cut your spending and start putting aside more cash – it might even be a good idea to not overpay your bills. This way, you will be prepared to keep paying off debt if something happens to your source of income.

Also, medical and other emergencies often require us to take out debt. Using your saved-up money to take care of emergencies is crucial because taking out another debt will hurt your credit even more.

Can Student Loans Build Credit? 🎓

Yes – but only if you pay them off on time. All loans will build credit, especially big ones like student loans.

However, dealing with this type of loan isn’t easy, most of all for young people with low income. For example, secure loans and secured credit cards are much better for credit-building because they bear no risk, unlike student loans, which can be a headache to deal with.

👨‍🎓 Looking for a student loan? Check out the benefits of SoFi Lending, a popular student loan platform.

How do I Get Rid of Bad Credit Quickly? ⏳

There is only one way to get rid of bad credit ASAP and it’s called credit repair. You need to find negative items that are in your credit report by mistake and send a dispute letter to your credit bureaus, telling them to fix the error. Alternatively, you can get a professional to do this – there are many good options to choose from when it comes to the top credit repair companies.

Does Bad Credit Clear After 7 Years? 📅

Most missed payments and other delinquencies will remain on your credit report for up to 7 years, and drive down your score. However, a major negative item like bankruptcy will sit on your report for 10 years.

If some of these bad items are on your report due to a mistake, they can be repaired by sending a dispute letter to the credit bureaus. If an item is there for a reason, you can only try sending a goodwill letter to your creditors and maybe they will agree to remove it. 

Is No Credit Considered Bad Credit? 🤔

Having bad credit means you’ve made mistakes in the past that label you as a risky customer. Having no credit means that lenders cannot determine if you’re a safe client or not. In practice, neither scenario is great, but having no credit means you’ll have an easier time improving your score.

All reviews, research, news and assessments of any kind on The Tokenist are compiled using a strict editorial review process by our editorial team. Neither our writers nor our editors receive direct compensation of any kind to publish information on Our company, Tokenist Media LLC, is community supported and may receive a small commission when you purchase products or services through links on our website. Click here for a full list of our partners and an in-depth explanation on how we get paid.