Having good credit matters. It determines whether you'll be able to get a mortgage on a house, rent an apartment or purchase a vehicle. By establishing creditworthiness, you show lenders you have good financial habits. Therefore, the better your credit, the more likely you'll be approved for a loan and get lower interest rates. Checking your credit score (opens in new tab) is an easy way to see where your credit stands.
Building credit takes time and effort, but it can be done. Whether you have no prior credit history or need to raise your low credit score, the following five tips will help you build your credit from the ground up.
Erin pairs personal experience with research and is passionate about sharing personal finance advice with others. Previously, she was a freelancer focusing on the credit card side of finance, but has branched out since then to cover other aspects of personal finance. Erin is well-versed in traditional media with reporting, interviewing and research, as well as using graphic design and video and audio storytelling to share with her readers.
Apply for a secured card
One of the most effective ways to build your credit is to apply for a secured credit card. A secured credit card is similar to a traditional credit card, but differs in the way you’ll receive your credit limit. With a secured card, you’ll have to put down a security deposit that will determine your credit limit, usually 50% to 100% of the deposit. This way, lenders won’t have to take as risk on making you a cardholder, but you’ll still be able to start building credit history.
Once you open the card and put down a deposit, you’ll be able to start making payments, and it’ll effectively work as a normal credit card. Over time, the more consistent on-time payments you make, the better your credit history and overall score will be. Although secured cards don’t have the lending power of most credit cards, they’re a good place to start. Secured cards can allow you to get your credit to a good enough place to swap to a traditional credit card. Some secured cards will automatically upgrade you to an unsecured card after a period of good standing as well.
One of the best secured cards to consider is the Discover It Secured card. Cardholders will earn 2% cash back at gas stations and restaurants (up to $1,000), plus 1% on everything else. It’s a great option to build credit, even offering a cash back match at the end of the first year.
Become an authorized user
Becoming an authorized user on an existing credit card account is another way to build your credit score from the ground up. An authorized user is an additional person who is able to use someone else’s credit card. Adding an authorized user to your credit card can have its risks though, so it’s important to be cautious when using this option to build up credit.
Becoming an authorized user on someone's card means that authorized user activity will be reported to the credit bureaus. Details of the credit card account — credit limit, credit utilization and payment history — will be shown on the authorized user's credit report (opens in new tab), increasing their credit history. Not only will the authorized user benefit from this arrangement, the initial cardholder can benefit as well. Any rewards or cash back earned from an authorized user will pool in the main cardholder's account.
However, if credit isn’t managed wisely by both the primary cardholder and authorized user, it could negatively impact both credit scores. If the authorized user is irresponsibly maxing out their spending limit, the primary user will get stuck with the bill. This can result in missed payments, increased credit utilization, and getting stuck with a high APR payment — all negatively impacting credit. On the other hand, if the primary cardholder is forgetful and misses payments often, this will have a negative impact on the authorized user’s credit history.
Open a store card
Typically, store cards require less credit history and lower credit scores for approval than more traditional credit cards do, so if you’re looking for ways to build your credit you may consider going this route. Just make sure you don’t get carried away with your spending, as store cards typically have higher interest rates if you don’t pay off balances in full each month. To avoid impulse purchases, open a store credit card somewhere you shop often for necessities, like a grocery store. Make purchases on the credit card and then pay them off right away. These on-time payments will start to build your credit over time.
Report rent payments
Reporting your rent payments is another way you can start building credit. While rent payments typically aren’t counted towards your credit report, Experian offers a service which will allow you to do this through the Experian RentBureau (opens in new tab). Eligible renters can have their payments reported through this service in order to increase their payment history. Using Experian Boost (opens in new tab) will also help you earn credit for on time utility, streaming and phone payments. Overtime, as your on-time payment history increases, your credit score will improve.
Open a credit builder loan
Finally, another option for building credit is opening a credit builder loan. This differs from most standard loans, because you won’t have access to the money right away. Instead, it’ll be held in an account to which you’ll make payments, and you’ll only be able to access the money when the loan is paid off. Payments will be reported to at least one credit bureau, helping you build credit and show lenders you’re a responsible borrower.
Looking for more tips? Here's how to get your credit score, and five ways to improve your credit score if it's too low. And, if you find yourself with a high balance, here's how to pay off credit card debt and save money on interest payments.