How to Build Your Credit

Credit Guide Series
Photo illustration to accompany guide to building credit Getty Images
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It’s hard to do anything in the 21st century without getting your credit involved. 

Buying a car? Your credit score will influence both the terms of your loan and your auto insurance premiums. 

Moving to a new apartment? Don’t be surprised if the leasing company runs a credit check. 

Starting a new job? Yes, even your employer might be interested in seeing your credit history before making an offer.

Whether you’re just starting to build credit for the first time or are hoping to rehabilitate your credit score, this guide to building credit has everything you need to know about the steps you’ll follow along the way. 

We’ll also show you how to protect your credit from potential negative effects brought on by the recent financial crisis surrounding COVID-19.

Common Ways to Build Your Credit

There is no easy fix to building (or repairing) your credit history. In short, the best way to build your credit is to demonstrate you are capable of receiving and paying back new and different lines of credit, from credit cards to car loans to mortgage loans. That said, here are a few common specific tactics that can help build and demonstrate your creditworthiness: 

Use and Pay Off Credit Cards

Credit cards are a good way to build your credit history, and many offer rewards and other benefits that make them even more helpful in your daily financial life. But it’s important to always pay your credit card bills in full and on time each month to avoid costly interest that can snowball over time when balances are carried over month to month. It’s also essential not to miss payments, as that can have a negative impact on your credit score. 

If you are unable to qualify for your own credit card, you could benefit from becoming an authorized user on someone else’s account, though make sure you do your research on the risks and downsides that could come with that approach. Secured credit cards are another option for people looking to build or repair their credit.

Get and Pay Off Loans

Since lenders like to see consumer who have a record of using various types of credit lines, auto loans, mortgages, and even personal loans can also help build your credit. Just like with credit cards, it’s essentially to make payments in full and on time, as late payments on a loan can hurt you. It’s especially important to make timely payments with personal loans, since they typically come with higher interest rates than an auto or home loan.

Check and monitor your credit report

In some cases, you could improve your credit score simply by catching and correcting an error on your credit report. That’s why it’s important to regularly check and monitor your credit for inaccuracies. Normally, you are entitled to one free credit report each year from But in response to the pandemic, you can check it for free once a week through April 2021.

Pay utility and other bills on time

While utility and other bills don’t typically report to the credit bureaus, a late payment sent to collections can negatively affect your score. As with loans and credit cards, it’s essential to make payments on time to avoid overdue balances being sent to collection agencies. If you are concerned you might need to miss a payment, call the utility or other company and ask about alternative payment possibilities, or a grace period for a late payment.

Understand Your Credit Report

If you’ve ever signed up for a credit card, bought a house, paid utility bills, or participated in the U.S. economy in any formal way, you have a credit report. 

A credit report is a deep dive into your history of paying bills and maintaining past and current accounts. It details the amount of debt you owe, to whom, how much has been paid back, and how effective you are at paying your bills. Also listed on your report: car insurance, apartment rentals, and retail credit card accounts. Lenders will use this information to determine how risky of an investment you are.

The details on your credit report also affect how your credit score is calculated. There are five main factors listed on your credit report. Each factor carries a different weight in terms of importance to lenders and its influence on your score, which is expressed in a three-digit number between 300 and 850. 

1. Payment history. Paying your creditors on time and in full is the most weighted factor in your credit report; it accounts for 35% of your total credit score. If your payment history includes late or insufficient payments, this will appear on your credit report as a derogatory mark.

2. Balances owed. Your total debt determines another 30% of your credit score. This includes your credit utilization ratio and other factors, such as the number of accounts that have balances. 

3. Age of credit history. A long history of making consistent payments is a positive sign to lenders, which is why the length of your credit history is included in your credit report. The longer your accounts have been open, the better they look on your report. This factor accounts for 15% of your credit score.

4. Credit mix. Lenders like to see a mix of three types on your credit report as proof you’ve used various types of debt responsibly. The mix of different account types determines 10% of your credit score. The three types of credit are installment credit, revolving credit, and open credit.  

5. Recent activity. The final 10% of your credit score looks at how much new credit you have taken on recently. If you open too many accounts in a short time, it may signal you’re experiencing financial difficulty, and your score will be negatively affected.

Pro Tip

Your credit score is determined by what’s on your credit report, and you can check yours for free at

Know The Difference Between a Credit Score and Credit Report 

Your credit report records your history of credit use while outlining your effectiveness as a borrower. The information on your credit report will then be used to determine your three-digit credit score

The three major credit bureaus — Experian, Equifax, and Transunion — gather the information from your credit report. But your credit score is typically determined by FICO (Fair Isaac Corporation) which developed the most popular model for credit scoring. 

Both your credit score and credit report may be accessed by banks, auto lenders, mortgage lenders, credit card companies, collection agencies, insurance companies, rental agencies, utility providers, and landlords. One exception is employers, who can only access your report, not your score. Whether they can use your credit report in hiring decisions depends on which state you reside in; all employers that are able to use your credit report in hiring must get your consent to do so. 

What Are the Credit Bureaus and How Do They Work

You may already be familiar with the three credit bureaus: Experian, Equifax, and TransUnion. These reporting agencies formed throughout the 20th century as a way for merchants to share lists of customers who had failed to pay their debts. In 1970, the Fair Credit Reporting Act was signed into U.S. law, creating an official set of standards for credit reporting. The act mandated consumers were entitled to a free copy of their report once per year, a law which still exists today.

The credit bureaus function as data collection agencies that compile information on your credit activity into a report. Lenders can then access these reports and use them to gauge how risky you are as a borrower. With the information in a credit report, lenders decide whether or not to offer you credit and what interest rate you qualify for. This information typically includes your repayment history, current and past accounts, and whether you’ve been delinquent or filed for bankruptcy in the past several years. 

It doesn’t include things like parking tickets, tax liens, and civil judgments.

What Is a Good Credit Score? 

Credit ScoreCredit Rating
300–579Very Poor
740–799Very Good
Source: Experian

Why This Matters 

If credit scores and credit reports are separate entities, which should you check? Ideally both, but experts say you should start with your credit report, which you can now pull for free on a weekly basis through April 2021. “Because all of your credit scores are based on that information, the focus should, at the very least, be on your reports,” says credit expert John Ulzheimer, formerly of FICO and Equifax. But, Ulzheimer points out, “there are also numerous ways to get free scores, so there’s no reason to not remain engaged with both your scores and reports.”

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