How To Build Up Credit in 5 Ways

By Matt Frankel | Updated June 30, 2022
reading time 6 min read
Woman sitting on couch holding her credit card and cell phone

Key takeaways: 

  • Your credit summarizes your financial behavior and payment history. 
  • You need credit for many of life’s major financial milestones, such as taking out a loan, accessing lines of credit or credit cards, or renting an apartment. 
  • Making regular payments on existing debt, diversifying your credit mix, and reducing your credit utilization can help you build credit, even if you have a low credit score or no credit history at all. 

Credit is an essential part of life. But many people don’t know why it’s so important—or how to build good credit.  Don’t believe those advertisements promising to fix your credit quickly. The path to better credit takes time and patience, no matter where you are in your financial journey. Luckily, we’re here to help. 

This guide breaks down credit and its potential impact on your life. You’ll also find 5 tips to boost your credit, plus our favorite credit-building best practices to create a healthier financial future. 

What is credit?

Credit is your ability to borrow money or access goods and services now, then pay for them in the future. It’s also a way to track and rate your financial reputation. 

Your credit is based on your financial habits and behavior. These also inform your credit report and credit score. 

If you have a solid record of paying your bills on time, you likely have good credit and a higher credit score. But if you’ve missed payments or defaulted on a loan in the past, your credit score may fall below the “fair” mark and your credit may be considered poor.

There are other behaviors that can hurt your credit score as well.  For example, it could lower your score if you carry high balances on your credit cards. Even if you pay your bill on time every month. 

Why is it important?

Building and maintaining your credit can help you achieve financial stability. Without credit or with poor credit, you may have a hard time taking out a loan, qualifying for the best credit cards, or even getting a job. 

However, a good credit score indicates you’re less of a risk to lenders. This may improve your chances of accessing more credit in the future and allow you to accomplish other life goals.  It can also save you thousands of dollars, as lenders typically give lower interest rates to borrowers with better credit.

On the other hand, bad credit can make it difficult to borrow money to buy a house or car. It can make your interest expense much higher than a good credit borrower would pay. 

How long does it take?

You can build a good credit score relatively quickly, even if you’re starting from scratch. You may be able to generate a VantageScore® in 1 to 2 months. But you’ll need at least 6 months to establish your FICO® Score. 

Unlike the VantageScore® model, the FICO® Score model requires you to have an active credit account that’s at least 6 months old. You’ll also need a creditor—such as a loan provider or credit card company—to report your credit activity to the three credit bureaus during those 6 months. 

However, this is the time required to establish credit. It can take several years to build your credit score to a “good” or “excellent” level. Credit repair can also take a long time, but can be well worth the effort.

5 ways to build up credit

It’s not always easy to build credit, especially if you’re starting from zero or working to repair yours. That’s because you often need credit to build credit. But it’s hard to get credit without any credit history. 

Here are 5 tips you can use to build or improve your credit: 

1. Prioritize on-time payments

Making timely payments is the single most important factor in your credit score. Make sure you pay your bills on time and make at least the minimum payment to stay ahead of late fees. 

If you’re having trouble keeping up with loan or credit card payments, you may consider consolidating your debt. Debt consolidation makes it easier to pay off multiple debts by combining payments into a single monthly charge. 

Debt consolidation loans may also come with lower interest rates compared to credit cards, which can help you save more each month. 

If you have a limited credit history, consider a secured credit card (or secured card), which offers many of the same benefits and protection as a standard credit card; however, there is a catch. A secured credit card will require you to put down a security deposit first since that allows your lender some added protection in case you default on your credit. Once you get one, however, a secured credit card reports to the credit bureaus just like a standard credit card. It can be a great tool to build credit, especially if you’re starting from scratch. 

If you can responsibly manage your line of credit, a secured credit card could give you a chance to establish credit with on-time payments. You can also get your security deposit back in full. Although this option is a way to build and improve your credit score, it often comes with low credit limits with high-interest rates.

2. Keep your credit utilization rate low

Your credit utilization ratio compares the total credit available to you to the amount you actually use. Your credit utilization makes up 30% of your FICO® Score. Experts generally suggest that you keep your credit card balances below 30% of your limits. Lower balances are even better. In fact, the average consumer with an elite FICO® Score uses just 4% of their revolving credit lines.

For instance, if you have a credit card with a credit limit of $2,000, it’s a good idea to keep your balance below $600. Doing so will reduce your debt-to-income ratio and may even improve your credit score.

3. Keep your credit accounts open

It’s tempting to close your credit card and bank accounts, especially if you’ve struggled to pay down credit card debt in the past. But unless you’ve got a really good reason to close an account—such as high annual fees—it may be a better idea to keep it open. 

Closing your bank account reduces your total available credit, which can affect your credit utilization. It also shortens your average account age, another factor used when calculating your credit score. This is especially true when it comes to closing “starter” credit cards, which for many people are their oldest established credit accounts.

4. Spread out your credit account applications

Pay attention to when (and how often) you apply for new credit accounts. Applying for a new line of credit can cause your credit score to drop slightly. That’s because creditors often run hard credit inquiries before approving your application. 

Hard inquiries appear on your credit report. A hard inquiry can impact your score for up to a year. Multiple inquiries performed in a short time frame can be a red flag to lenders because it could indicate you’re in a tight financial situation. Newly opened accounts also reduce the average age of your credit accounts, which can also hurt your credit score.

Try to space your applications out over about 6 months or combine multiple applications into a short period of time. In many cases, applications submitted within a 2-week window are grouped into one batch and considered “rate shopping.” For example, if you’re shopping for a mortgage, it’s still a good idea to apply with several lenders to find the best rate.

5. Diversify your credit mix

Your credit mix—or the types of credit accounts you have—is one of the factors the credit bureaus consider when calculating your credit rating. Essentially, it shows credit agencies that you can handle the responsibilities of different types of debt. 

Your credit mix makes up 10% of your FICO® Score. Although it’s not the most important deciding factor, diversifying your credit mix can provide a boost to your score. However, it’s important to go about it the smart way. 

Prequalifying can help reduce the number of hard credit inquiries that appear on your credit report. Researching credit card or lending company requirements may also help in the long run. 

It’s also a good idea to choose an affordable type of credit since credit cards often come with high interest rates. With that in mind, a personal loan may be a more cost-effective way to vary your credit mix. Plus, most personal lenders allow you to check your rate and get pre-approved without a hard credit inquiry.

Personal loans are typically unsecured loans, which means they aren’t backed by any collateral. Most personal loan providers use your credit history to determine your interest rate. If you’re new to credit, you may have a hard time qualifying for affordable financing. However, you may have success applying for a personal loan through Upstart.

Our model looks at more than your credit score by factoring non-traditional variables, such as your education¹ and work experience. If you get approved for a loan, we’ll also report your payments to the credit bureaus, which can improve your rating. 

Another alternative to consider is a credit-builder loan where you make fixed payments to a lender and at the end of the loan’s term, you get access to the loan amount. This is typically different from a traditional loan where you receive funds upfront and pay it back over time. You can find credit-builder loans at community banks or your local credit union—there are also online lenders and companies that can provide this type of product and services to help build credit.

Ready to start building credit? Upstart may be able to help

There’s no doubt about it: you’ll need plenty of time and patience to build excellent credit. Luckily, whether you’re just establishing your credit or simply want to boost your score, you can take the first steps toward better credit today. Taking the time to understand your circumstances and options can help you make smart choices to influence your future. 

¹Neither Upstart nor its bank partners have a minimum educational attainment requirement in order to be eligible for a loan.

This content is general in nature and is provided for informational purposes only. Upstart is not a financial advisor and does not offer financial planning services. This content may contain references to products and services offered through Upstart’s credit marketplace.

About the Author

Matt Frankel

Matt Frankel is a Certified Financial Planner® whose mission is to create a more financially informed world. Matt has had more than 10,000 published articles throughout his career, and won a 2017 SABEW Best in Business award for his coverage of the tax reform legislation. His work has been featured in The Motley Fool, CNBC, MSNBC, Nasdaq, USA Today, and many other outlets. He can regularly be seen on Motley Fool Live, and he has made guest appearances on NPR, BBC, Cheddar News, just to name a few. Matt is based in the Columbia, South Carolina, area where he lives with his wife Kathy, two amazing kids, and two high-maintenance dogs.

More resources you may be interested in

What to Do Before a Credit Check to Get Approved
What is a Hard Credit Inquiry? Why Does it Matter to My Credit?
Why Did My Credit Score Drop for No Reason? 10 Common Reasons Your Score Went Down

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