Building your future

How can I build credit?

Whether you're trying to establish or repair your credit, building credit can be tricky. However, it is possible to obtain a high credit score over time through the use of credit-building tools and strategies. 

About Credit

Credit is extended by financial institutions to people, allowing you to borrow money, with the understanding that you will pay it back later. Financial institutions have internal processes they use to determine if you are a reasonable risk (meaning they think it is very likely you will pay you back the credit {money} they are extending {lending} to you). These processes more often than not include checking your credit score.

To learn about credit scores, histories, and reports, view our module “What do I need to know about my credit?”

Credit-building strategies

  • Get inaccuracies removed from your credit report. If you find incorrect information on your credit report, the credit bureau and the business that supplied the information to a credit bureau are required to correct it for free. To request a correction, you can follow instructions for submitting a dispute from the Federal Trade Commission, a government agency created to protect consumers from unfair business practices.
  • Try to make ontime payments. Making payments on time, every time, is the most important thing you can do to help build your credit score. Whether you’re paying off your entire balance or just making minimum required payments, consistency is key.
  • Keep your overall credit utilization low. Utilization is the percentage of your combined credit limit being used. If you’re able, keeping your credit utilization below 30% will help your overall credit score.
  • Avoid applying for multiple credit accounts in a short span of time. When you apply for a credit account, the lending company may do a hard credit check, which will cause a small, temporary drop in your score. Multiple applications within a six month period can cause your score to drop significantly. An exception would be if you submitted multiple applications for auto loans or mortgages within a short span of time. Credit bureaus will see this as rate shopping and group the applications into one.
  • Keep credit card accounts open. Unless you have a compelling reason to close an account, like a high annual fee, consider keeping it open. Closing an account can hurt your credit utilization and reduce your average account age, which in turn will lower your credit score.

Credit-building tools

  • The Independence Project: Established by The National Network to End Domestic Violence, The Independence Project is a program that helps domestic abuse survivors build credit through microloans. As part of the program, survivors receive a microloan of $100, which is repaid over the subsequent 10 months with no interest. To qualify for this program, survivors must meet with a domestic violence advocate three or more times.
  • Secured credit cards: Secured credit cards make it possible for people with poor or no credit to have a credit card. When something is “secured,” that means it has an asset–like money–backing it up, or securing it. To open a secured credit card account, you first deposit money with a credit card issuer. This is a security deposit, just like the security deposit a tenant pays to a landlord when leasing an apartment. If you make at least the minimum payment on time each month, using a secured card can help build your credit. Just be sure to select a card that reports payment data to all three credit bureaus: Equifax, Experian, and TransUnion.
  • Bank-backed credit cards: Financial technology companies (FinTechs), like Chime and Varo, offer an alternative to traditional secured credit cards that can help you build credit. These cards do not require credit checks, security deposits, nor do they charge interest. Instead of requiring a security deposit, they will have you open a bank account with them and make a qualifying deposit. The amount of money you deposit will be how much you can spend with the card. These companies report payments to the three major credit bureaus, which make them a low-risk way to build credit without going into debt. When choosing a bank-backed card, look for providers that are insured by the Federal Deposit Insurance Corporation (FDIC) or National Credit Union Administration (NCUA).

Need more support?

Consider finding a free financial counselor in your area who can help you devise a personalized credit-building strategy. To learn more about financial counseling, view our module “Where can I get free financial advice?”

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