Building Credit: 6 Simple Ways to Boost Your Credit Score

If you’re struggling with debt, you’re likely also working to maintain a good credit score. Luckily, though building credit can be a slow process, it’s a relatively simple one that doesn’t require spending much money.

How to Build Credit: 3 Ways to Use Credit Cards

Building credit is a relatively simple process. Rebuilding credit after bankruptcy, charged-off debts or loan defaults is more time-consuming. These methods will work for both, but if you’re starting to build credit from scratch, understand that it will be much faster than if you’re working to fix a damaged credit score.

Secured Credit Cards

How much will it boost your credit score? Secured credit cards can initially increase your credit score by about 30 points.

Most banks and credit card issuers offer secured products to help customers who don’t qualify for a “traditional” credit card. Secured cards are “secured” with an initial deposit, and your credit limit will equal your deposit amount. For example, a secured credit card with a $500 credit limit will require a $500 security deposit. 

Pro tip: Secured credit cards don’t offer the same perks and features as traditional credit cards, including cash back, cash advances or balance transfers.

Once you’ve established some credit history with a secured credit card, you should be able to “upgrade” your account to an unsecured credit card account with a higher credit line. 

READ MORE: Secured credit cards

Become an Authorized User

How much will it boost your credit score? According to Credit Sesame, people with bad credit who are added to someone else’s account as an authorized user see an average increase of 10% within the first month.

An authorized user has been added to a credit card account with no additional credit check. Typically, a family member would add another user to their account. The authorized user gets a card with their name on it and shares purchasing privileges but is not responsible for paying the bills. The primary cardholder (and secondary, if applicable) is responsible for all charges made to the account, including by the authorized user.

Apply for a New Credit Card With a Co-signer

How much will it boost your credit score? This won’t instantly improve your credit score, but it will improve your payment history, credit utilization, and credit mix, all key components of a FICO score.

If you don’t qualify for a loan or credit card on your own, you can try to apply with a co-signer. Both account holders will share equal responsibility for repaying any debt that is incurred. The loan will appear on both parties’ credit reports. Late payments will hurt both parties and if you default, your co-signer will have to repay the debt.

3 Ways to Build Credit Without a Credit Card

Not everyone will qualify for a credit card, and not everyone has a relative who might be willing to help them out. If you need ways to build credit that don’t involve credit cards at all, here are your three best options.

Credit-Builder Loans

How much will it boost your credit score? About 40 points in the first few months if you have existing debt and about 100 points if you don’t have existing debt, according to a study by the Consumer Financial Protection Bureau (CFPB).

A credit-builder loan is an installment loan designed to help the borrower build credit. 

Credit-builder loans are unique because the borrower actually pays the lender monthly installments, which are held in savings. At the end of the loan term, the money is returned to you in a lump sum. They’re considered secured loans because the bank deposits money on your behalf.

The advantages of credit-builder loans are two-fold: They help borrowers build credit, but also can help save money. It’s like opening a traditional savings account, only borrowers pay interest to the lenders and the lenders report the payments to the credit bureaus. There may be an upfront fee to open an account.

Credit-builder loans present little or no risk to the lender, so they can offer these loans to people with poor credit or no credit. They may be offered by other names, like “Starting Over Loans” or “Fresh Start Loans.”

Self and Kikoff Credit all offer credit-builder loans.

READ MORE: Credit-builder loans

Subscriptions

How much will it boost your credit score? According to Experian, Experian Boost users see an average 13-point increase.

We all pay these days for streaming services. Recurring payments to Netflix, Hulu, Disney+, etc., can help you build credit. You can also get credit for monthly cell phone, utility, and rent payments.

However, you’ll have to sign up for a service like Experian Boost, which is free.

Anyone can sign up, but consumers with little to no credit and those with poor to fair credit scores will benefit most. Of people with poor credit scores, 87% saw an increase. Among those with fair credit scores, 63% increased their scores.

READ MORE: Do subscriptions build credit?

Check Your Credit Reports and Remove Errors

How much will it boost your credit score? It will depend on the severity of the error, but if late payments are mistakenly listed, it could be anywhere from no change to 100 points.

More than one-third of Americans have found mistakes on their credit reports. Some of these are more important to correct than others, particularly if missed payments are involved. You also want to ensure that your personal information is accurate, even though those errors may not directly affect your credit scores.

You must contact the credit bureau that generated the report containing the mistake and note the disputed item, inaccuracies, or other incorrect information. 

Here is the contact information:

• Equifax: 1-866-349-5191, P.O. Box 740256, Atlanta, Ga. 30374-0256; equifax.com
• Experian: 1-888-397-3742, P.O. Box 4500, Allen, Texas 75013; experian.com
• TransUnion: 1-800-916-8800, P.O. Box 2000, Chester, Pa. 19016; transunion.com

READ MORE: How to check your credit reports and fix errors

Pro tip: Americans are entitled to a free credit report from each of the three major credit bureaus once per year through annualcreditreport.com. You should pull all three annually and review them for errors.

READ MORE: How to get free credit reports and scores

Other Ways to Build Credit

• Make on-time payments
• Keep your credit utilization low and your available credit high
• Keep credit card accounts open
• Don’t apply for too many new credit accounts at once
• Try to maintain different types of credit accounts

Pro tip: Even loans with no credit check, like payday loans and title loans, can hurt your credit score if you fail to make your payments on time. These lenders don’t report on time payments, so they won’t ever help your credit score, but late payments may be reported to the three major credit bureaus, and those will hurt your credit score.

READ MORE: How to get a loan with bad credit

Why Did My Credit Score Drop?

There are any number of reasons your credit score may drop. Applying for a new loan or credit card can cause your scores to fall a few points, while charged-off loans or bankruptcy filing can cause your credit scores to fall by up to 200 points. 

While credit scores can fall very quickly—sometimes even within a day of a negative event—it takes longer to rebuild them. If you plan to apply for a loan to cover a major purchase, like a car loan or a home loan, avoid anything that could ding your credit score before or during the process.

Pro tip: A mortgage application can be jeopardized simply because of a new credit card application. Do not apply for new lines of credit or loans until your contract is signed.

READ MORE: Why did my credit score drop?

How Long Does It Take to Build Credit?

Building credit can take anywhere from a few months to several years, depending on your current credit score. It won’t take long if you’re just starting out, but it may take years if you’re recovering from charged-off debts or bankruptcy.

There are two primary credit scoring models with slightly different credit score ranges:

	FICO score range	VantageScore range
Excellent credit	800 and up	781 and up
Very good credit	740 to 799	661 to 780
Good credit	670 to 739	601 to 660
Fair credit	580 to 669	500 to 600
Poor credit	300 to 579	300 to 499

No one knows precisely how credit scores are calculated, but FICO has provided the following breakdown:

• Payment history: 35%
• Credit utilization ratio: 30%
• Length of credit history: 15%
• Credit mix: 10%
• New credit: 10%

READ MORE: Current balance vs. available credit

Whatever your current credit situation, you must consider those five criteria carefully. Don’t make any late payments. Keep your oldest credit accounts open. Try for a mix of different types of loans, rather than exclusively credit cards. Don’t open too many new accounts at once. And keep your credit utilization below 30%.

READ MORE: Which credit score, bureau or report is most accurate?

How to Build Credit From Scratch

For beginners, your credit score doesn’t start at zero. Instead, you’ll be classified as having “no credit.” If you’re starting from scratch, it will take about six months to build a solid credit score. You can do this by becoming an authorized user on a parent’s credit card, getting your own credit card or using Experian Boost. 

The key is that you must make all your payments on time. Otherwise, you risk doing more harm than good.

READ MORE: What credit score do you start with?

If your credit history is less than ideal, it will take longer to fix the damage. How long it will take will depend on your credit score and the black marks on your credit report. For example, it could take 18 months to recover from a missed payment or several years to rebuild your credit after a Chapter 7 bankruptcy filing.

How to Use a Credit Card to Build Credit

Credit cards can be one of the simplest ways to build credit. However, not everyone will initially qualify for a new card. 

If you’re a student, there are credit cards specifically designed for college students. These typically have more lenient application requirements, low credit limits, offer cash-back rewards and charge fewer fees.

Pro tip: Credit cards will only help you build credit if you make your minimum payments each month. Ideally, you will pay your entire credit card balance in full. Use the card for a few small expenses each month to keep the new account active.

You still have options if you don’t qualify for a traditional credit card. In addition to being added as an authorized user to an existing account, you can try applying with a co-signer or applying on your own for a charge card from a retail store. These cards are typically only available for use at a specific store. The Kohl’s Card is one example. The application criteria for these cards are lower, and if you use the card sparingly and make all payments on time, you should qualify for a traditional credit card within a few months to a year. 

Pro tip: Store charge cards can only be used at one retailer. Some stores offer Visa/MasterCard products that are available for use everywhere. Those cards will have stricter application criteria.

How to Build Credit Fast

There is no sure-fire way to build credit fast. But if you’re new to credit, becoming an authorized user can be one of the fastest ways to build credit if you’re starting from nothing, as long as the primary owner makes all payments on time.

If you have fair or poor credit and want to boost your credit score quickly, the fastest ways are to ask a relative to add you as an authorized user on their account and sign up for a service like Experian Boost to help you get credit for paying recurring monthly bills.

READ MORE: Is no credit better than bad credit?

How to Build Credit For Children 17 and Under

Helping children develop good credit habits is essential.

Many parents want to start building their children’s credit before they turn 18, particularly if the child will be applying for student loans or an auto loan. If your child has a good credit score, the interest rates they’ll have to pay will be lower.

Most people aren’t assigned a credit score until they turn 18, but minors can have credit reports:

• If they’ve been added to accounts as authorized users
• If a joint account was created
• If they’ve been a victim of identity theft
• A credit profile was erroneously created

There is no age requirement for being added to an account as an authorized user, but before you add your child, check with the credit card company. Some of them won’t report authorized users until they turn 18. 

Most credit-building products, like credit-builder loans, have a minimum age requirement of 18, and some credit cards require applicants to be 21 or to be able to provide proof that they have enough income to pay the credit card bills.

Pro tip: Request copies of your child’s credit report when they turn 16. Errors will be easy to spot and you can get ahead of any fixes that need to be made before your child is eligible for his or her own credit accounts.

READ MORE: Advantages of credit

Credit Repair 

Credit repair can quickly improve your credit score, particularly if you find errors on your credit reports. There are a few different ways to fix your credit.

3 Ways to Repair Credit

If your credit is damaged, you might need to take a few extra steps to help your credit score rebound. But credit repair doesn’t have to be expensive.

Credit Counseling

Cost: Typically free if you’re working with a nonprofit credit counseling agency

Nonprofit credit counseling agencies can help give you tips on improving your credit scores and better managing your debt. Your credit counselor will review your current financial status and offer advice. This is typically a free service. Most agencies provide consumer credit counseling sessions through various platforms, including online via chat or Zoom, via telephone, or in person in one of the company’s local offices. They also offer Debt Management Plans, a custom-designed plan to repay your debts.

READ MORE: Credit counseling

Credit Repair Services

Cost: Anywhere from $19 to $149 per month, depending on the services offered

Credit repair companies search your credit report for negative marks and try to get the credit bureaus to remove them. They do this by acquiring a copy of your credit report from each major credit reporting agency. Then, they’ll look for anything that shouldn’t be in the report, such as:

• Late payments
• Charge-offs
• Tax liens
• Bankruptcy
• Repossessions

The agency will create a credit repair plan to dispute any errors and negotiate with your creditors. The credit repair package offered typically includes:

• Validate information requests
• Credit dispute letters (to fix any errors)
• Cease-and-desist letters to debt collectors and lenders to stop aggressive calls

READ MORE: Best credit repair services

How Much Should I Pay for a Credit Repair Agency?

Remember that credit repair agencies don’t do anything you can’t do on your own, so you’re paying for the convenience of someone else doing the legwork. These services can range from $19 to $149 per month.

There’s also no guarantee that the credit repair agency will be able to get results. If the negative items on your credit reports are accurate, they won’t be able to have them removed.

Credit Repair Organizations Act

The Credit Repair Organizations Act (CROA) is a federal law passed in 1996 created to regulate the credit repair industry. Its main goal is protecting consumers against scammers or other shady outfits claiming to fix credit. Like the Fair Debt Collection Practices Act, it protects against unfair debt collection business practices and can be helpful to those in need of protection

If you have signed a written contract with a company, the CROA gives you three business days to change your mind and submit a cancellation notice. 

The Following are Prohibited Practices Under the CROA:

• Charging an upfront fee
• Asking you to lie or mislead credit reporting companies about your accounts
• Telling you not to contact the three credit reporting agencies on your own
• Suggesting you use false pretenses or create a new credit identity to hide credit problems
• Suggesting you give lenders inaccurate information on credit or loan applications
• Not providing a written contract or meeting the contract requirements
• Telling you to sign a waiver giving up any of your CROA rights
• Promising to remove negative information on your credit report, even if accurate

Credit Repair Software

Cost: Typically starts at $39.99

Credit repair software can be a good compromise between trying to repair your credit yourself and paying big bucks for a professional credit repair company.

The software can cost as little as $39.95 up to hundreds of dollars, depending on the features you need.

READ MORE: Best credit repair software

How to Avoid Credit Repair Scams

Most credit repair scams use similar tactics. They promise to remove negative information from your credit reports (even if it’s accurate) and increase your credit scores significantly. Then they will require that you pay a hefty fee for these services, either monthly or upfront.

Federal laws, including the Credit Repair Organizations Act and the Telemarketing Sales Rule, are in place to protect consumers. They forbid credit repair companies from using deceptive practices and charging upfront fees. When selecting a credit repair service, remember that if the promises they make sound too good to be true, they probably are. 

The Federal Trade Commission enforces consumer protections and frequently takes action against scam companies, including credit repair scams.

For example, Financial Education Services and its owners, Parimal Naik, Michael Toloff, Christopher Toloff, and Gerald Thompson, as well as several related companies, were shut down after allegedly scamming consumers out of more than $213 million by promising to improve their credit scores, then recruiting them to sell the company’s service to others.

“These defendants collected millions in junk fees as part of a pyramid scheme that peddled phony credit repair products,” said Samuel Levine, Director of the FTC’s Bureau of Consumer Protection. “We are pleased that the court shut down this operation and froze its assets, and we will continue to pursue firms that prey on families’ economic pain.”

Credit Repair Scams Promise Which of the Following?

Scammers regularly target people who are down on their luck and desperate to repair their credit scores. Here are some warning signs to watch out for:

• They promise removal of negative information from credit reports: It cannot be removed if the information is accurate and current.
• They promise to achieve specific results: A credit repair company cannot promise a specific increase in your credit scores.
• They tell you to dispute accurate information in your credit report: This shady tactic wastes your time.
• They want payment upfront: Credit Repair companies are prohibited by federal law from requesting or receiving payment until they’ve completed the services they promise.
• They refuse to explain your rights: Under the Fair Credit Reporting Act, you can complete most of the services provided by Credit Repair Agencies for free.
• They tell you not to contact credit bureaus directly: There’s no reason why you can’t contact the credit bureaus.

The Bottom Line

Maintaining good credit is important because it will affect many different aspects of your life, from how much it will cost to borrow money to whether a landlord is willing to rent you an apartment. Building credit, however, can take time, particularly if you’ve had some unfortunate missteps in the past. But with patience and determination, you should be able to see positive improvements within a few months. 

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