How to Build Credit

How to Build Credit

Your credit score is the adult version of your high school GPA, and like your grades, it can have real-life consequences.

An excellent credit score can save you tens of thousands of dollars on a mortgage, and may even be the difference between getting approved and turned down for a loan.

Building an excellent credit score takes time and patience, but getting into the 800+ club isn’t all that difficult. It just takes following a core set of steps repeatedly for a long period of time.

If you start today, you’ll be on track for a high credit score not too far in the future.

You need credit to build credit

There are a lot of myths and misconceptions about credit.

Let’s clear some of those up right now. You do not need to spend money on a credit card for your credit score to go up. However, you do have to have credit to build a credit score.

If you never have credit or have not for the last decade, you probably won’t have a credit score at all.

Opening new credit cards and other credit can temporarily lower your score, as you will generate both a new inquiry and a new credit account.

But as each account ages, it helps your score go up as long as you keep it in good standing.

For example, say you have15 open credit cards.

It may sound like a lot, but, as long as you use credit in the appropriate way, your score has the potential to increase from the 720 range, with just a few credit cards, to the 820 range a few mortgages and a bunch of credit cards later.

More accounts help your score in the long run, but only if you use them correctly. The next two sections tell you the right way to use your cards to build and keep a high credit score.

Keep revolving balances low

Two types of credit are considered “revolving” credit. The first, and most common, being credit cards. The second is a line of credit.

The key features they have in common is the ability to continue adding to the balance at any time. This is contrary to an installment loan where you cannot increase the principal through regular purchase activity.

Experts suggest keeping your revolving credit balances below 20 percent of your available credit. That 20 percent figure is across all credit cards.

For example, if you have one card only with a $1,000 limit, you would want to keep your total balance below $200.

But if you have two cards that each have a $2,000 balance, you can safely use up to $400 between the two cards at any given point in time.

I use my cards for every possible purchase to earn reward miles and points for free and discounted travel.

I pay my cards off in full every month to a zero balance, which is the best possible balance for a good credit score. You don’t need to carry a balance to build credit.

You just need to keep your accounts open. That means you can just use your cards a few times per year each, pay them off in full, and your credit score should rise.

ALWAYS pay on-time

You can pay your balance off at any time and see a boost to your credit score within the next month or so when the credit card issuer updates your credit account details with the credit reporting bureaus.

But an on-time payment record is far from instant when you’ve made past mistakes.

Building and keeping a perfect on-time credit payment record is easy.

Just sign up for automatic payments or set up calendar reminders so you always pay on time.

The banks will give you a few days leeway if you are a little late, but if you forget about a payment for 30 days or more your credit will certainly suffer.

Late and missed payments stay on your credit report for seven years, and drag down your credit score the entire time. The longer ago the transgression took place, the less weight it has on your score.

But a series or pattern of late and missed payments can cause serious damage to your credit that may take the better part of a decade to fix.

Don’t forget about bills and judgments

One of the most common reasons for someone’s credit score to suddenly drop has nothing to do with credit balances or missed credit card or loan payments.

Medical and other collections can land on your credit report too, and stay there until resolved plus a number of years.

Collections, bankruptcies, public records, discharged debts, and other negative marks can stay on your credit report for up to ten years.

If you can avoid them, you always should. It may be frustrating to pay up for that old cell phone bill or medical bill today, but in a few years when you are looking to buy a car or home with a loan, you’ll be glad it is resolved.

Perfect credit is just around the corner

If you already have a history of negative information on your credit report, it will take some time to fix things up, but it is completely possible.

Start by making a 100 percent on-time payment record from today forward, and your late and missed payments will slowly start to drop off of your credit.

For those with no credit history, you are in a great position to get started with a good credit score. If you never miss a payment, you’ll never have one dragging your score down.

Start with good habits today, and your perfect credit score will be just around the corner.

Editorial Note: This content is not provided or commissioned by the credit card issuer. Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by the credit card issuer. This site may be compensated through a credit card issuer partnership.

This article was last updated April 24, 2018 but some terms and conditions may have changed or are no longer available. For the most accurate and up to date information please consult the terms and conditions found on the issuer website.

Our editors independently research, test, and recommmend the best products; you can learn more about our review process here. We may receive commissions on purchases made from our chosen links.

Article Staff

Eric Rosenberg is a finance, travel, and technology writer in Ventura, California. He is a former bank manager and corporate finance professional who left his day job in 2016 to take his online side hustle full-time.

Eric has written for sites such as Huffington Post, Business Insider, Forbes, Entrepreneur, Kiplinger, Mint, and Money.

Eric has two finance degrees (BSBA from the University of Colorado and MBA from the University of Denver) and has professional work experience as a bank manager and in corporate finance and accounting in the telecom and payments industries.

He has in-depth experience writing about banking, credit cards, investing, and other financial topics, and is an avid travel hacker.

When away from the keyboard, Eric enjoys exploring the world, flying small airplanes, discovering new craft beers, and spending time with his wife and little girls. You can connect with him at Personal Profitability or

Editor Jenna Holtz
Researcher Ronnie Langston
Art Director Cherry Barbacena

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