How to Build Credit

August 28, 2024 |

By Jennifer Tucker

Posted in: Credit

Lenders look at many factors to understand you and your credit responsibilities, and your credit score may be the most important input they consider. But what if you don’t have much credit experience? Is there a way to build credit fast?

Knowing how to build credit is something everyone needs to learn. Credit scores are used in a variety of financial decisions, from buying a car to getting a mortgage.

When you have little to no credit or a low credit score, it can be difficult to get approved for a credit card, loan, or even rent an apartment.

While there’s no fast fix for creating a credit history, there are many ways you can start building, improving, and maintaining your credit score.

Type of Credit

Understanding the different types of credit is the first step in establishing and maintaining good credit. There are three main types of credit you may encounter:

Revolving credit. Revolving credit allows you to borrow up to a specified credit limit, repay the amount borrowed, and then borrow again as needed. The most common example of revolving credit is credit cards. With revolving credit, you have the flexibility to carry a balance from month to month. However, paying off the full balance each month will help you avoid interest charges and maintain a healthy credit score.
Installment credit. Installment credit allows you to borrow a specific amount and repay the amount borrowed in fixed installments over a set period, usually monthly payments. This type of credit includes personal loans, student loans, car loans, and mortgages. Each payment you make will reduce the principal amount of the loan, and once all your payments have been made, the account is closed. Installment credit can be an effective way to build a positive credit history through consistent, on-time payments.
Service credit. Service credit refers to ongoing services and bills that you pay monthly, such as utilities, cell phone plans, and internet services. While these accounts may not be considered traditional forms of credit, they can affect your credit history and score. Consistently paying these bills on time demonstrates your reliability as a borrower and can positively impact your credit.

Once you understand the different types of credit, you can learn how to build your credit effectively. Building credit involves more than just opening accounts; it requires responsible decisions and healthy financial habits.

How to Establish Credit from Scratch

Your credit score is built on your credit history, which takes time to build and maintain. Many people have yet to establish credit, especially those who are younger and have little experience with credit. How do you get credit if you have none?

Here are some ways you can establish credit from scratch:

Become an authorized user. An authorized user is someone who is added to an existing credit card account and is permitted to use the line of credit. As an authorized user, you can make purchases but are not legally responsible for the debt. The card’s activity is tracked and will be reflected in your own credit report. As long as the account holder makes on-time payments, being an authorized user can help you build or improve your credit score.

Learn more about authorized users here.

Find a co-signer. A co-signer is someone who agrees to take on the responsibility of repaying a loan if the primary borrower fails to do so. If you opt to have a co-signer, this person will sign the loan agreement with you and commit to being your backup. Co-signers can help you qualify for a loan and build your credit history. But choose your co-signer carefully, and make sure they understand their responsibility to repay the loan if you can’t.

Learn more about the pros and cons of a co-signer here.

Get a credit-builder loan. A credit builder loan, like Marine Credit Union’s Get Credit, is designed specifically for people with little or no credit history. A credit builder loan allows you to build or improve your credit history by making on-time payments, which are reported to the credit bureaus. Local banks or credit unions often offer these types of loans.

Experian Boost or Ultrafico. Certain reporting services can help you get credit for the bills you pay. Experian Boost takes your utility, cell phone, internet, or other service accounts and adds your on-time payments to your Experian credit report. UltraFICO adds information about your bank account, cash flow, and transactions to your credit report. Additionally, rent reporting services can add your on-time rent payments to your credit report.

While these reporting services can help establish your credit history, keep in mind that not every lender uses these bureaus or scores to evaluate your creditworthiness.

How to Build Credit with a Credit Card

If you already have some established credit and a steady income, a credit card* may be a good option to continue to build and maintain credit. Credit cards are the most common form of credit usage and, when managed well, can help you strengthen your credit score.

Here are ways you can build credit with a credit card:

Find a good first-time credit card. First things first: research the types of credit cards available to you with your current credit score. A good first-time credit card will come with no annual fee, low interest rates, and possibly even credit-building features. Nerd Wallet is a good resource to compare credit cards.

Open a secured credit card. A secured credit card may be a good option when you’re new to credit or have poor credit. These cards require a security deposit, which serves as your credit limit. This allows you to set your own limits and helps you create good borrowing, spending, and repayment habits.

Make timely payments. Once you start spending with a credit card, it’s important to get into the consistent habit of repaying your debts. Aim to always make at least the minimum payment by the due date. Set up automatic payments through your bank or credit card issuer to ensure you never miss a payment.

Keep balances low. Aim to keep your credit utilization low. A best practice is to keep your card balances below 30% of your limit. For example, if your credit limit is $1,000, try to keep your balance under $300.

Use the card regularly. Making regular purchases can help you demonstrate responsible credit usage to lenders. Use your card for manageable purchases that you can easily pay off each month.

Request a credit limit increase. After you’ve demonstrated responsible credit use for a few months, contact your card issuer to request a credit limit increase. But remember, just because you’re approved for a higher limit doesn’t mean you should spend it. You still want to keep your credit utilization ratio low.

*Marine Credit Union does not offer credit cards.

How to Build Credit Without a Credit Card

While credit cards can be a good way to build your credit, there are other options, too. Any current accounts you have established can also help you build your credit score.

Here are ways you can build credit without a credit card:

Paying existing loans. When you already have existing debt, it is important to pay it down in full or pay the minimum amount when required. Paying off existing loans shows lenders your ability to manage your current debt.

Use an installment loan. An installment loan requires you to repay the borrowed amount with a fixed monthly payment. Types of installment loans include student loans, personal loans, and auto loans. They can help you build your credit by establishing a positive payment history.

Use a secured loan. A secured loan requires collateral, such as a savings account, to secure your loan amount. Like an installment loan, you repay the loan amount in regular payments, and the repayment history you establish can help you build your credit.

Report utility and bill payments. Reporting services like Experian Boost allow you to add utility and phone bill payments to your credit report. When you pay these bills on time, you can potentially increase your credit score.

Report rent payments. Services like RentTrack allow you to report your rent payments to the credit bureaus. This can also help you establish a credit history. Note that not all credit bureaus accept rent payment reports.

Learn more about how to report your rent to credit bureaus here.

Seek lending assistance. The Mission Asset Fund is a nonprofit specializing in borrowing and credit-building through peers who lend to each other. This is sometimes referred to as peer-to-peer lending and is a type of community-building effort that has helped many people build their credit while helping others do the same.

Enroll in a credit-building program. A credit-builder loan is specifically designed to help you build or improve credit. These loans work by holding the amount you borrow in an account while you make regular monthly payments. Once you repay the loan, the funds are released to you, and your on-time payments are reported to the credit bureaus. Credit unions, community banks, and online lenders commonly offer credit builder loans.

Learn how Marine Credit Union can help you build your credit score with Get Credit.

How to Build Your Credit Fast

There’s no fast fix for building or repairing your credit. Building credit relies on knowledge, behavior changes, and time. However, small changes can make a big impact. For example, making on-time payments can lead to a score increase in a relatively short period of time. Just remember that consistency is key. If you miss one payment, it can take 24 months to restore your credit score.

If you plan to make a big purchase, you might wonder, “Can I build my credit in 30 days?” Dramatic changes to your credit score are unlikely in such a short timeframe. However, you will likely see improvements quickly since creditors, lenders, collection agencies, and public records report new data daily. This is especially true for people with short credit history.

Watch Out for Scams

Beware: there are companies out there that claim they can build or repair your credit fast. Unfortunately, many of these sources are scams. You should NEVER pay to improve your credit. The only reliable way to build or improve your credit is to rely on positive behavior changes over time.

So, what trustworthy sources can you turn to for help building credit? Working with a counselor can help you understand your financial goals, challenges, and steps to improve your financial well-being. Some reputable credit counseling agencies and financial education sources include:

Marine Credit Union Can Help You Build Your Credit Score with Get Credit

Don’t let your credit score get in the way of where you want to go. Get Credit is a simple way to build or rebuild your credit and build up a stack of cash along the way. It’s a 12-month loan that helps you improve your credit history and increase your savings by making on-time payments.

Learn more about Get Credit.

Credit 101: Frequently Asked Questions

How Does Credit Work?

Your credit score is a personalized, three-digit number that demonstrates your creditworthiness. It’s calculated based on your credit history and used by lenders to assess the risk of lending you money and your likelihood of paying back debt. It factors into the type, terms, and loan amount you are approved for.

Learn more about how credit works here.

What are the Types of Credit?

The three main types of credit you may encounter include:

Service credit. While not considered traditional credit, service credit refers to ongoing services and bills that you pay monthly, such as utilities.

Revolving credit. The most common example of revolving credit is credit cards.

Installment credit. This type of credit includes personal loans, student loans, car loans, and mortgages.

Can You Build Credit with a Credit Card?

Yes, you can build credit using a credit card. The most effective ways to build credit with a credit card include:

Regularly checking your credit report
Making your payments on time
Spending responsibly
Keeping old credit accounts open
Limiting new credit applications

How Do You Build Credit Without a Credit Card?

Building credit without a credit card is possible and can be achieved in many ways. The most effective ways to build credit without a credit card include:

Enrolling in a credit-building program like Marine Credit Union’s Get Credit

Paying existing loans
Using an installment loan
Using a secured loan
Reporting utility and bill payments
Reporting rent payments
Seeking lending assistance

What is a Secured Credit Card?

A secured credit card is a type of credit card that requires a security deposit as collateral. It can be used to build or repair your credit when you have no credit history or poor credit. The deposit acts as a safety net for the lender in case of default.

How to Build Credit Fast?

Credit Resources from Marine Credit Union

More Credit Resources

Jennifer Tucker
Jennifer Tucker is a freelance writer for Marine Credit Union. She has held roles in banking, marketing, and public relations during her 15+ year career. She holds a bachelor’s degree in communication with a minor in journalism from the University of Portland and a master’s degree in communication from Marquette University.