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How to build credit

Sept. 13, 2022
7 min read
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Whether you’re planning out the perfect rewards credit card to apply for next or you’re preparing to buy your first home, having good credit matters.

The condition of your credit score can mean the difference between qualifying for financing or having a lender deny your application. Your credit could also determine whether you can receive affordable interest rates and attractive financing offers or whether you have to pay more to borrow money.

Good credit can work to your advantage while bad credit (or no credit) could hold you back. So you’ll want to do everything in your power to figure out how to build credit and maintain a good credit score.

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The guide below provides six solid tips on the best ways to build credit. You’ll also learn about a few credit mistakes you should try to avoid along the way.

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Start with a credit check

Before you apply for new credit, even as a beginner, it’s smart to review your credit reports from all three major credit bureaus. You might believe that your credit reports with Equifax, TransUnion, and Experian are blank slates. But it’s critical to confirm there are no surprises before you allow a lender or credit card company to check your credit report and score as part of an application for financing.

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Thanks to the Fair Credit Reporting Act (FCRA), you can get a free copy of each of your credit reports once every 12 months. To claim this freebie, visit AnnualCreditReport.com.

Next, go over each report in detail. Look for errors, questionable information and red flags. If you discover credit report errors, you can dispute them with the appropriate credit reporting agency. And if your reports show signs of potential fraud or identity theft, you may need to take additional actions as well.

Get the credit you already deserve

Even if you haven’t applied for traditional credit in your own name, you might already have certain monthly payment obligations. Are you responsible for a monthly utility bill, mobile phone bill, rent payment or even a subscription service? If so, you might be able to add some of that positive payment history to one or more of your credit reports.

The credit bureaus won’t allow you to self report accounts on your own as a consumer. However, there are third-party services that can scan your bank account and credit card statements for any payment history on certain types of bills. If these services discover eligible accounts, they can share the account information with one or more of the credit bureaus. As a result, you might wind up with some positive accounts (also known as tradelines) on your credit report.

Some examples of services that might help you add eligible utility bills, rent payments or other types of accounts to some of your credit reports are:

Open a starter account

When you’re ready to start building traditional credit, it can be helpful to search for credit card companies or lenders that are willing to work with people with little to no credit history. Applying for a starter credit card is one of the best ways to build credit. If you’re a student, you might want to consider a student credit card as well.

Of course, you probably want to avoid credit cards that require good to excellent credit for approval if you haven’t had the chance to establish a solid credit history yet. You can keep those types of credit cards on your wish list for the future. If you apply for cards that don’t match your credit profile now, the card issuer might deny your application.

You could also consider opening a credit builder loan if you’re looking for another way to build credit from scratch. Credit builder loans are a special type of installment loan designed to help people establish credit. Just be sure to find a lender that reports to all three credit bureaus and review the fees in detail before you apply for this type of account.

Manage your new account with care

Whether you open a new credit card, a credit builder loan or something else, you should make a commitment to manage your new account in a responsible way. A new credit account will only have the potential to help you build credit if you exercise sound credit management practices.

That includes avoiding applying for too much new credit at once. Too many hard inquiries can decrease your credit score.

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And with credit cards, it’s important to pay your entire statement balance off every month — on time. This good habit can help you avoid paying costly interest charges and can help you keep your credit utilization ratio low — a good move where your credit score is concerned.

Related: TPG’s 10 commandments of credit card rewards

Consider opening more credit

Once you’ve gotten the hang of managing your starter accounts responsibly, you might want to consider adding more credit accounts to the mix. Having multiple types of accounts on your credit reports — like credit cards, an auto loan and a student loan — has the potential to help your credit score thanks to the way credit scoring models work.

You can also think about asking someone you know for a favor if you want to give your credit-building efforts a potential boost. If a family member or friend has a credit card account that they’re willing to add you to as an authorized user, you might be able to benefit from the positive credit history associated with that account. (Note that it’s important that the account has on-time payment history and a low credit utilization rate. Otherwise, being an authorized user could damage your credit score rather than help it.)

Continue monitoring your credit reports

As you continue to use your new credit accounts and repay your creditors each month, it’s wise to keep a close eye on your credit-building progress. In other words, you should continue to monitor your credit reports (and ideally your credit scores too).

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As mentioned, you can get free copies of your credit reports every week via AnnualCreditReport.com. There are also numerous websites you can use for free credit monitoring with one or more of the credit bureaus. And if you’re willing to pay a monthly fee, the credit bureaus, myFICO, and other third-party service providers offer three-bureau credit report and score monitoring services as well, with varying features and price points.

However you decide to proceed, as long as you’re making an effort to review all three of your credit reports on a consistent basis you should be in good shape.

Bottom line

Building credit takes a lot of effort. You’ll want to start by accessing your credit report and making sure that you already have all eligible accounts on there.

Next is applying for a starter (or student) credit card, making sure it’s one that does not have a high credit score requirement.

Then, keep your credit utilization low by paying the statement balance on time every month. As you do this, your credit score will increase and you will be eligible to apply for more credit cards. Having a variety of account types, like mortgages and student loans, on your credit report can increase your score.

Finally, keep an eye on your credit report to see how your score changes over time and monitor it for any fraudulent or incorrect applications.

Featured image by Getty Images/iStockphoto
Editorial disclaimer: Opinions expressed here are the author’s alone, not those of any bank, credit card issuer, airline or hotel chain, and have not been reviewed, approved or otherwise endorsed by any of these entities.

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  • Lacks travel protections that other travel rewards cards come with
  • For a limited time, earn 80,000 bonus ThankYou® Points after you spend $4,000 in purchases within the first 3 months of account opening
  • Earn 3 Points per $1 spent at Restaurants and Supermarkets
  • Earn 3 Points per $1 spent at Gas Stations, Air Travel and Hotels
  • Earn 1 Point per $1 spent on all other purchases
  • Annual Hotel Savings Benefit
  • 80,000 Points are redeemable for $800 in gift cards when redeemed at thankyou.com
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Best starter travel card
TPG Editor‘s Rating
Card Rating is based on the opinion of TPG‘s editors and is not influenced by the card issuer.
4 / 5
Go to review

Rewards Rate

3XEarn 3 Points per $1 spent at Restaurants and Supermarkets
3XEarn 3 Points per $1 spent at Gas Stations, Air Travel and Hotels
1XEarn 1 Point per $1 spent on all other purchases
  • Intro Offer
    For a limited time, earn 80,000 bonus ThankYou® Points after you spend $4,000 in purchases within the first 3 months of account opening

    Earn 80,000 ThankYou® points
    60,000 points
  • Annual Fee

    $95
  • Recommended Credit
    Credit ranges are a variation of FICO© Score 8, one of many types of credit scores lenders may use when considering your credit card application.

    670-850
    Excellent, Good

Why We Chose It

The Citi Premier’s 3 points per dollar spent across a wide range of popular categories is one of the more lucrative offerings in the world of points and miles. The Citi Premier comes with a $95 annual fee and is currently offering a solid sign up bonus of 80,000 points after you spend $4,000 on purchases within the first three months. It also has some valuable transfer partners to make the most of your rewards. Add in access to Citi Entertainment plus a $100 hotel credit for any single-stay hotel booking that exceeds $500 or more, excluding taxes and fees, booked through the Citi travel website, there are few reasons why the Citi Premier should not be in every traveler’s wallet.

Pros

  • Earns 3x points on restaurants, supermarkets, gas stations, air travel and hotels.
  • $100 annual hotel savings benefit (on single hotel stay bookings of $500 or more, excluding taxes and fees, booked through thankyou.com)
  • Points transfer to 16 airline programs, from JetBlue to Virgin Atlantic.
  • World Elite Mastercard benefits, extended warranty, damage and theft protection.

Cons

  • $95 annual fee
  • Lacks travel protections that other travel rewards cards come with
  • For a limited time, earn 80,000 bonus ThankYou® Points after you spend $4,000 in purchases within the first 3 months of account opening
  • Earn 3 Points per $1 spent at Restaurants and Supermarkets
  • Earn 3 Points per $1 spent at Gas Stations, Air Travel and Hotels
  • Earn 1 Point per $1 spent on all other purchases
  • Annual Hotel Savings Benefit
  • 80,000 Points are redeemable for $800 in gift cards when redeemed at thankyou.com
  • No expiration and no limit to the amount of points you can earn with this card
  • No Foreign Transaction Fees on purchases