How to Build Your Credit: Your Step-by-Step Guide

Your credit score can impact more aspects of your life than you might realize. Having good credit not only increases your likelihood of getting approved for a loan, but it can also make you a stronger candidate for an apartment or even a job. That's why it's worthwhile to work on building your credit, even if you aren't planning to ask for a loan in the near term.

Now if you're wondering what's considered a good credit score, the truth is that it depends on whom you ask. Generally speaking, your chances of getting approved for a loan are pretty high if your FICO score is in the upper 600s or above. But most borrowers don't want to just get approved; they want to snag the best possible rates.


With that in mind, we've developed this handy 10-step guide on how to increase your credit score . From paying off credit card debt to applying for a secured credit card, our guide is loaded with tips on how to raise your FICO score so you're pleasantly surprised the next time you check your credit report.

Step 1: Check your credit report on a regular basis

One of the easiest ways to build your credit is know where you stand, which means you should access and review your credit report at least once a year. More than one-third of Americans don't check their credit reports regularly, but by law, you're entitled to a free copy of your report each year from all three major credit bureaus -- Equifax, Experian, and TransUnion. You can access your free credit report online here.

Step 2: Dispute credit report errors immediately

It's estimated that 20% of credit reports contain errors, but if you're among the 16% of Americans who never check their credit reports at all, you could be missing out on an easy way to boost your score overnight. According to the Federal Trade Commission, 20% of consumers who dispute credit report errors see their scores increase as a result, so if you spot a mistake, be sure to contest it at once. Credit bureaus are required by law to respond to disputes within 30 days, or otherwise remove the data in question, so you have nothing to lose by making your case.

Step 3: Pay your bills in full and on time

Your payment history plays a big role in determining your credit score, and if you make a habit of paying your bills on time and in full month after month, you can build up your credit sooner than you'd think. While there are other factors that come into play when calculating your credit score, your payment history carries more weight than any other aspect, so it pays to get into a good bill-paying pattern early on.

Step 4: Don't use more than 30% of your available credit

Your credit utilization ratio, or the extent to which you're using your available credit, is another factor that goes into calculating your credit score. You should always aim to keep your credit utilization ratio to 30% or less, which means that if you're given a $5,000 line of credit, you should never borrow more than $1,500 at any single point in time.

Step 5: Pay down existing debt

Paying off existing debt can help your credit in several ways. First, if you start making timely payments, it'll boost your payment history. Additionally, the more debt you eliminate, the lower your credit utilization ratio will fall. A good way to approach your present debt is to tackle those balances that carry the highest interest rates first and then work your way downward. Another option is to transfer your existing high-interest debts to a credit card with a lower rate.

Step 6: Get a secured credit card

A secured credit card differs from a regular credit card in that it requires you to keep a certain amount of money in a linked savings account as collateral. Getting approved for a secured credit card is relatively easy, even if you're not starting out with great credit, because your lender is taking on significantly less risk. But if you use that card and pay your bills on time, they'll count toward your payment history just as regular credit card payments would.

Step 7: Become an authorized user on somebody else's card

Getting your name added to an established account can work wonders for your credit score, even if you don't actually use that card yourself. When you become an authorized user on someone else's card, that person's credit limit gets added to yours, which can help bring your credit utilization ratio down. Furthermore, becoming an authorized user on another card can help you beef up your credit history if you're fairly young and haven't had time to establish a solid one of your own.

Step 8: Take out a credit-builder loan

As the name implies, credit-builder loans are designed to help folks with poor credit improve their financial standing. You can open one through a credit union or bank, and once you do, the amount you borrow will be deposited into a savings account that you can't touch until your loan is repaid in full. While a credit-builder loan won't give you immediate access to extra cash, your payments will be reported to all of the major credit bureaus, which means you easily can boost your credit by sticking to the terms of your loan.

Step 9: Avoid opening too many new accounts at once

Some people shy away from checking their credit reports for fear that doing so will lower their scores. But while a soft inquiry, such as requesting your own credit report, won't damage your score, a large number of hard inquiries could impact it negatively. Any time a lender delves into your credit history, it's considered a hard inquiry, and having too many at once can hurt you. That's why it's best to open new accounts slowly over time.

Step 10: Keep your accounts open for as long as possible

Your credit history is another factor that goes into figuring your credit score. Unlike your payment history, which speaks to your ability to pay your bills in a timely fashion, your credit history represents the amount of time you've had active accounts. Closing an old credit card, therefore, can actually hurt your credit history, but more so than that, it can impact your credit utilization ratio by lowering your overall credit limit. Unless you have a pressing reason to close an old account (say, the introduction of a high annual fee), you're better off keeping it open and being smart about how you use it.

The better your credit, the greater your chances of getting approved for a mortgage, auto loan, or credit card at the most favorable rate. By following these steps, you'll soon be on your way to seeing your credit score climb.

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