10 tips to build credit

If you’re trying to build credit, things may seem a little backward when you realize you actually need credit to build credit.

But understanding some credit basics can help you get started. Here are some ways you can build credit by using it responsibly.

What you’ll learn:

• Building credit takes time and effort. 

• To build credit, it’s important to practice good financial habits and monitor your credit routinely.

• One way to build credit is to use a credit card responsibly by doing things like paying your statement on time every month. 

• Secured credit cards are designed for people who are trying to build or rebuild their credit. 

Credit cards can be a valuable tool to build credit. But you can build credit whether you have a credit card or not. One thing that’s universal, though, is the importance of practicing responsible credit habits. 

Take a closer look at what that means with these tips for building your credit.

Credit can get complicated. But learning how it works can help you take control of your credit scores. Here’s how the Consumer Financial Protection Bureau (CFPB) explains it:

“A credit score is a number based on information contained in your credit report,” the agency says. “You don’t have just one credit score. There are many credit scoring formulas, and the score will also depend on the data used to calculate it.”

That data can change based on when a credit score is calculated. But even though there are multiple credit-scoring formulas, the CFPB says they each use similar information to calculate a credit score. That information includes:

• Payment history

• Credit age

• Credit mix

• Credit utilization

• Recent credit accounts

Learn more about what affects your credit scores.

Whether you’re building credit from scratch or are well on your way, it’s important to practice responsible habits like:

• Creating a budget

• Making on-time payments to establish a good payment history

• Paying more than your credit card minimum payment to avoid interest and keep down your debt

• Staying under your credit limit

• Avoiding too many hard credit checks by being thoughtful about applying for new credit 

Monitoring your credit scores and reports can also help as you work toward building your credit scores. One way to track your credit is by getting free copies of your credit reports from AnnualCreditReport.com. 

There’s also CreditWise from Capital One. It’s free and easy to use, whether you’re a Capital One customer or not. And using it won’t hurt your scores, so you can check it as often as you want.

When you apply for credit cards, you’re asking for a type of open-ended loan from a lender. As your application is considered, the lender may take into account your credit history by looking at your credit report.

If you have a thin credit file—meaning you haven’t used credit much yet—there may not be a lot for a lender to consider. And that could make it more difficult to secure access to credit. But some credit cards are designed with this in mind. Here are some traditional starter cards that could help you build or establish credit when used responsibly:

• Student credit cards are exactly what they sound like: Credit cards for college students and recent graduates. For example, Capital One’s student credit cards offer cash back rewards and other perks.

• Cards for fair to average credit are for people who have limited credit history or are working to build credit.

Secured credit cards are a lot like traditional cards, with one main difference: They require a deposit to open the account. That money acts as collateral, and it’s usually refundable. Beyond the deposit, secured cards look and function like traditional unsecured cards. Check out Capital One’s secured credit cards that could help you build credit with responsible use.

Another way to build credit is to become an authorized user on the credit card of a trusted family member or friend. While authorized users have access to an existing card account and might even get their own card, the primary account holder is ultimately responsible for payments. 

It’s important to know that credit card issuers aren’t required to report the card activity of authorized users to the credit bureaus. But when an issuer does, responsible card use by the primary cardholder and authorized user could positively impact credit scores for both. In the same way, negative actions like missed payments could harm scores for both.

If you’re having trouble getting approved for a loan, having a co-signer you trust could improve your chances of qualifying. If your friend or family member agrees to co-sign a loan, they provide information, such as their income and credit information, and agree to repay the loan if you can’t. Having a co-signer could also help you qualify for better terms or rates. 

It’s important to note that most major credit card issuers don’t allow co-signers. But becoming an authorized user on a trusted person’s account could be an option.

Your payment history and the age of your credit accounts are among several factors that affect your credit scores. Your credit mix is another. Credit mix accounts for around 10% of what makes up credit scores. And it’s an indicator of your ability to handle different types of loans, including revolving credit and installment loans. 

Using the Capital One CreditWise Simulator could give you an idea about how adding new loans or credit cards could affect your scores. CreditWise is free for everyone. And using it won’t hurt your credit scores.

Credit-builder loans (CBLs) are designed with a different goal than traditional loans: Borrowers make payments before receiving the money. Because of that, CBLs work a little differently.

Credit unions typically offer these loans, according to the CFPB. But they may be available elsewhere, too. The loans start with the lender depositing a small amount—around $300 to $1,000—into a locked savings account. Borrowers then make small payments over a set period, known as a term. Terms might last anywhere from six to 24 months. When the term ends and all payments are made, the money is paid out. 

As payments on a CBL are made to the lender, progress is reported to credit bureaus. That’s how a CBL can help you build credit. But it’s important to take payment due dates seriously. Late or missed payments could end up hurting your credit, according to the CFPB.

Your payment history is one of the most significant factors that go into calculating your credit scores. So you’ll want to be sure you’re making timely payments on any existing debt like a mortgage, student loan or car loan.

Having debt typically means you’ve already established a credit history. Staying current on your loan payments and reducing debt can help you continue to build credit.

Keep in mind that falling behind on payments for secured loans—like car loans or mortgages—can do more than affect your credit. That’s because the vehicle or property is used as collateral with a secured loan. Falling behind on payments means you could risk losing the collateral.

Bills for things like your cellphone, utilities and rent often aren’t reported to the credit bureaus. So they may not have any impact on your credit, even if you’ve never missed a payment.

But there may be ways to have your rent or other bills added to your credit report. For example, Experian®, one of the three major credit bureaus, offers a service that can track these kinds of payments and add them to your credit report. So if you pay those bills on time each month and use the service, you may see a boost in your credit score.

Still curious about building credit? Here are answers to some frequently asked questions.

Building credit takes time, and it requires financial responsibility and consistency. By steadily making progress, you may set yourself up to reach bigger financial goals like buying your own home.

Ready to get started? Check out Capital One credit cards for fair and building credit. You can even find out if you’re pre-approved, with no harm to your credit score.