How to Build Good Credit in 10 Painless Steps

You typically need a credit card or loan to build a credit history. (Sorry, but all those on-time rent and utility payments are rarely reported to the credit bureaus, so they won’t help your score.)
Make a purchase at least once every three months on the account, as credit card companies often close inactive accounts. Then pay it off in full.
By using a loan to pay off your credit cards, you’ll also free up credit and lower your credit utilization ratio.

How to Build Good Credit in 10 Steps

If you have open credit, ask your current creditors for an increase, rather than applying for new credit. That way, you’ll avoid lowering your length of credit, which could ding your score.

1. Stay on Top of Your Credit Reports

You’ll get the simplicity of a single payment, plus you’ll typically pay less interest since loan interest rates tend to be lower. (If you can’t get a loan that lowers your interest rate, this probably isn’t a good option.)
Provided you aren’t paying ridiculous fees, keep your credit card accounts open once you’ve paid off the balance. Credit scoring methods reward you for having a long credit history.

2. Pay Your Bills. On Time. Every Single Month

If you want to whip your finances into shape, here’s a good New Year’s resolution: improving your credit score.
If you’re struggling with credit card debt, consolidating your credit card debt with a loan could be a good option. In a nutshell, you take out a loan to wipe out your credit card balances.
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3. Establish Credit, Even if You’ve Made Mistakes

Tackling credit card debt helps your credit score a lot more than paying down other debts, like a student loan or mortgage. The reason? Your credit utilization ratio is determined exclusively by your lines of credit.
A strong payment history takes time to build. If you’ve made late payments, they’ll stay on your credit reports for seven years. The good news is, they do the most damage to your score in the first two years. After that, the impact starts to fade.

4. Open a Secured Card if You Don’t Qualify for a Regular Card

Now go crush those goals in 2022 and beyond.
About 1 in 5 credit reports contain inaccurate information. Make sure you access your reports at AnnualCreditReport.com, rather than one of the many websites that offer “free” credit scores but will make you put down your credit card number to sign up for a trial. File a dispute with the bureaus if you find anything you think is inaccurate or any accounts you don’t recognize.

• Discover it Secured
• OpenSky Secured Visa Card
• Secured Mastercard from Capital One

5. Ask for a Limit Increase. Pretend You Never Got It

Yeah, you knew we were going to say this: Paying your bills on time is the No. 1 thing you can do to build good credit. Your payment history determines 35% of your score, more than any other credit factor.
When you apply for credit, it results in a hard inquiry, which usually drops your score by a few points. So avoid applying frequently for new credit cards, as this can signal financial distress.
Focus on your overall financial picture, and you’ll probably see your credit score improve, too. Remember, though, that while credit scores matter, you matter more.

6. Prioritize Credit Card Debt Over Loans

Opening a secured credit card is one of our favorite ways to build a positive history when you can’t get approved for a regular credit card or loan. You put down a refundable deposit, and that becomes your line of credit.
The downside of a higher credit limit: You’ll have more money to spend that isn’t really yours. To get the biggest credit score boost from a limit increase and avoid paying more in interest, make sure you don’t add to your balance.

7. Keep Your Old Accounts Active

If the bureaus agree to remove information from your credit reports, expect to wait about 30 days until your reports are updated.
But if you have bad credit or you’re a credit newbie, getting approved for a credit card or loan is tough. Look for cards that are specifically marketed to help people start or rebuild credit. Store credit cards, which only let you make purchases at a specific retailer, can also be a good option.

8. Apply for New Credit Selectively

After about a year of making your payments on time, you’ll typically qualify for an unsecured line of credit. Just make sure the card issuer you choose reports your payments to the credit bureaus. Look for a card with an annual fee of no more than . Some secured card options we like (and no, we’re not getting paid to say this):
Don’t believe the myth that carrying a small credit card balance helps your credit score. Paying off your balance in full each month is best for your score, plus it saves you money on interest.

9. Still Overwhelmed? A Debt Consolidation Loan Could Help

A lot of New Year’s resolutions fail because they’re so extreme. Think of all the bonkers weight-loss and money-saving goals that surface at the start of every year.
Source: thepennyhoarder.com
This resolution is different. No extreme measures are required. But there aren’t any shortcuts. Building good credit is a goal you need to commit to 12 months a year.

All the credit-monitoring tools out there make it easy to obsess about your credit score. While it’s important to build good credit, look at the bigger picture. A few final thoughts:

10. Keep Your Credit Score in Perspective

Bonus: Paying off credit card debt first will typically save you money, because credit cards tend to have higher interest rates than other types of debt.

• Your credit score isn’t a report card on the state of your finances. It simply measures how risky of a borrower you are. Having an emergency fund, saving for retirement and earning a decent living are all important to your finances — but these are all things that don’t affect your credit score.
• Lenders look at more than your credit score. Having a low debt-to-income ratio, decent down payment and steady paycheck all increase your odds of approval when you’re making a big purchase, even if your credit score is lackluster.
• Don’t focus on your score if you can’t pay for necessities. If you’re struggling and you have to choose between paying your credit card vs. paying your rent, keeping food on the table or getting medical care, paying your credit card is always the lower priority. Of course, talk to your creditors if you can’t afford to pay them, as they may have options.

Your credit reports won’t show you your credit score, but you can use a free credit-monitoring service to check your score. (No, checking your own credit doesn’t hurt your score.) Many banks and credit card companies also give you your credit scores for free.
Robin Hartill is a certified financial planner and a senior writer at The Penny Hoarder. Send your tricky money questions to [email protected] or chat with her in The Penny Hoarder Community.
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Set whatever bills you can to autopay for at least the minimums to avoid missing payments. You can always pay extra if you can afford it.