How to Build Credit: The Complete Beginner’s Guide

Boosting your credit score is like leveling up in a video game, but instead of new power-ups, you get access to better loans, credit cards, apartments, and even job opportunities. The best part? Leveling up your credit doesn’t require a finance or math degree. Just consistency. This complete beginner’s guide will break down how to build credit step by step.

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Considering ways to build your credit? MoneyLion helps you find credit-building tools from our trusted partners. 

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The basics of credit and building credit 📚

Before we discuss how to start building credit, let’s break down exactly what “credit” means (because this term gets thrown around a lot). 

Credit is your ability to borrow money.

If you have good credit, most banks will have no problem lending you money (usually at low interest rates). But if your credit needs work, banks will probably charge you a higher rate or avoid lending you money at all.

Credit is measured in two common ways: 

1. Credit score: A numerical representation of your creditworthiness, typically ranging from 300 to 850. You can think of this like your financial GPA; it’s your entire borrowing and spending history summed up in one number. The higher your credit score, the better.

2. Credit report: A detailed record of your credit history compiled by a credit bureau. You can think of this like your transcript; it includes all the details about your financial history, like current and past loans, credit cards, payment history, and other behaviors. It’s similar to your credit score, but provides more information.

👉 What’s the Difference Between a Credit Score and a Credit Report

You can think of your credit score like your financial reputation. 

If you have a high credit score, most banks will want to be your friend. They might even compete for your friendship by offering incentives to hang out with (like lower interest rates or sign-up bonuses).

If your credit needs work, banks will be cautious about being your friend. Some banks might avoid hanging out with you entirely until you turn things around, or they’ll make you work harder to be their friend by paying higher interest rates or deposits.

On to the million-dollar question: How do you get good credit?

How are credit scores calculated? 🔢

Credit scores are calculated by three credit bureaus: Equifax, Experian, and TransUnion. These companies collect information on you and use it to create your credit profile, which lenders can then view to determine whether or not to lend you money.

There are 5 factors that go into your credit score:

1. Payment history (35% of your score): Whether you’ve paid your bills on time in the past. Lenders usually like to see consistent, on-time payments.

2. Amount owed (30% of your score): The amount of debt you currently owe. Lenders usually like to see that you don’t currently owe lots of money to other lenders.

3. Length of credit history (15% of your score): The age of your oldest accounts and the length of time you’ve had your newest accounts. Lenders usually like to see that you’ve had your accounts for a while. 

4. New credit (10% of your score): The number of new credit lines you’ve opened recently. Lenders usually don’t like it when you’ve opened too many lines of credit too quickly.

5. Credit mix (10% of your score): The different types of credit lines you have access to. Lenders typically like to see that you have a mix of credit varieties.

👉 What Affects Your Credit Score?

How to build credit from scratch 📝

OK, let’s get into the meat and potatoes of this article. Namely, how to build credit fast.

Trying to build credit can be a frustrating process. Oftentimes, you put in tons of work, but your score doesn’t budge. In other cases, lenders won’t even give you a chance to prove yourself.

Luckily, there are plenty of strategies you can use to jumpstart your credit-building journey.

Step 1: Start with the basics

Apply for a credit card

One of the best ways to build credit is by getting a credit card, using it, and paying it off consistently. 

Responsibly using a credit card checks 3 boxes off your credit score: payment history, credit mix, and length of credit history (once you’ve owned the card for a while).

If you don’t qualify for a traditional credit card, here are some alternatives you can explore: 

1. Secured credit card: This is a credit card that’s designed for building credit. With a secured card, you pay a refundable cash deposit that then becomes your credit limit. For example, if you pay a $200 deposit, you’ll receive a $200 credit limit. Then, you can use your card and make on-time payments to help build your score. Some secured cards offer super low security deposits, making it easy to get started.

2. Student credit cards: Student credit cards are designed for beginners, making them easier to qualify for with little to no credit history. They report your payments to the major credit bureaus, so using them responsibly helps you build a positive credit history from the start.

3. Find a bank that helps build credit: Not every bank pushes ultra-premium credit cards that charge $800 annual fees. Many banks specifically cater to help people looking to establish or improve their credit. Instead of searching for the right credit card, consider starting your search by finding a bank that makes building credit simple.

4. MoneyLion Credit Builder Plus: Our membership dedicated to helping build your credit health, primarily through our Credit Builder Loan, which has helped more than half of our members raise their score by up to 27 points within the first 60 days!¹

👉 Best Credit Cards for Building Credit
👉 Best Credit Cards for No Credit

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MoneyLion can help you explore a wide variety of credit card options designed to help you build credit. 

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Become an authorized user on someone’s credit card

If a family member or close friend has good credit, consider asking them to add you as an authorized user on one of their credit cards.

Their positive payment history can boost your credit profile, so this is a bit like asking a friend to refer you for an interview at their job. You can get a small boost by using their good reputation.

Use this strategy with caution: The primary user is still responsible for any debt that’s racked up on the card, so it’s a good idea to really talk things through before tying your financial futures together.

Consider a credit-builder loan

A credit builder loan is specifically designed to help you establish or improve your credit history, similar to a credit-building credit card. 

Instead of giving you the money up front, the lender holds the loan amount in a savings account while you make fixed monthly payments. Once the loan is fully paid off, you get access to the money. 

In the meantime, your payment history is reported to the credit bureaus, helping you build a positive credit history when you make on-time payments.

Report rent and utility payments

A frustrating part about credit is that not all of your expenses get reported to credit bureaus.

So, while you might pay your rent and utilities on time, these payments don’t actually make a difference in your score. It’s like crushing a take-home practice test. While it feels good, it doesn’t actually count towards your grade. 

Luckily, you can change that by exploring services like Experian Boost or UltraFICO.

Experian Boost helps you report on-time rent, phone, utility, and even streaming payments to credit bureaus. This can help give your score a boost if you’re on top of these expenses. 

UltraFICO works by linking directly to your checking and savings accounts to give lenders a clearer picture of your finances.

Both of these options are solid strategies if you have an impressive checking/savings account history and want your credit score to reflect this.

Step 2: Use credit responsibly

Once you get approved for credit, it’s time to prove yourself. In just a few short months, you could be the proud owner of a much higher credit score and on track for financial wellness if you make the right choices.

Here are 3 tips to help you use your credit responsibly:

1. Don’t spend your entire limit: Just because you have a $1,000 limit, doesn’t mean you should spend all $1,000 every month. In fact, spending less than 30% of your available credit can help boost your score. For example, if your limit is $500, then limiting spending to around $150 can help shout, “I’m financially secure” to lenders. The fancy term for this is credit utilization, if you want to do more research.

2. Pay on time, every time: Payment history makes up 35% of your FICO score, so even one late payment can hurt. If you’re trying to build credit, this is a huge factor to focus on

3. Set up autopay or reminders: Your brain is great for lots of things, but remembering obscure dates (like when your credit card payment is due) usually isn’t one. These dates sneak up on you, so consider setting up autopay or phone reminders to make sure you never miss your due date.

It’s also helpful to know that there are 3 approaches to paying off your credit card.  

If you’re short on cash one month, try to avoid logging out of your account and pretending it doesn’t exist. Instead, consider making a smaller payment.

Even if you don’t pay off your full balance, making a smaller payment can protect your credit score while you work to come up with more cash. Here are the most common strategies:

1. Pay off your current balance: This is when you pay off everything you owe. It’s usually the ideal option because it ensures that you never fall behind on your credit card bill.

2. Pay off your statement balance: This is when you pay off your tab from last month. It’s another good option that will make sure your balance doesn’t collect interest. 

3. Pay the minimum payment: This is when you make a small payment just to keep your lender happy. It’s not ideal because your balance will start collecting interest. But it’s usually better than nothing because it protects you from late fees and a hit to your credit score.

👉 Statement Balance Vs Current Balance
👉 How to Build Credit with a Credit Card

Step 3: Build positive habits over time and track your progress

A key to building credit is to slowly build positive financial habits that add up over time. Consider starting with just one credit card. Then, expand to other positive habits, like these:

1. Keep a mix of different credit types: Having multiple types of credit can help boost your score, so consider having both revolving credit (credit cards) and installment credit (loans). The goal isn’t necessarily to use all your credit, it’s just to have access to it. Having access to credit looks good to lenders.

2. Keep credit accounts open: Lenders look at how long you’ve had your credit accounts, so it can be beneficial to keep your accounts open, even if you don’t really use them. There’s little downside to just letting an account sit there, unless it has really high fees.

3. Check your credit reports: Did you know you can actually fact-check your credit report? You just have to visit AnnualCreditReport.com to view your report and double-check for any errors. Finding and disputing an error can actually be one of the quickest ways to build credit, but only if there’s a mistake on your report.

4. Expand your credit limit: After a few months of making on-time payments, consider asking your lender for a credit limit increase. Lenders are often more lenient after you’ve proven yourself to them. If approved, you’ll get more spending flexibility, and the extra credit might help boost your score.

👉 Why Is It Important to Check Your Credit Report
👉 How to Improve Your Credit Score: 10 Tips & Advice

How to increase your credit score: Avoid common credit-building mistakes 🤦

When it comes to building credit, knowing what not to do is just as important as knowing what to do. Here are a few major no-nos to avoid:

Making late payments: Again, making on-time payments is one of the most important factors for building credit, so this one deserves extra attention. Think of it like being late at work: It just takes one tardiness to hurt your reputation as a hard worker.

Closing old credit cards or credit accounts: Closing old credit cards might feel like you’re tidying up your wallet, but it might be doing more harm than good. If you’ve got old accounts, consider just letting them be. 

Applying for multiple lines of credit back-to-back: Applying for too many credit cards at once is like speed-dating lenders. It looks a little desperate, and your credit score might take a hit. Each application triggers a hard inquiry on your credit, and too many back-to-back checks can drag down your score and make you look risky. 

Opening credit lines that don’t influence your score: Payments for prepaid cards, payday loans, and “Buy here, pay here” are not reported to credit bureaus. While these forms of credit serve a unique purpose, they’re usually not the best for building credit.

Ways to monitor your credit score progress 🔎

Once you’ve started your journey, it’s important to track and monitor your progress. 

If your credit score slowly creeps up over time, then you know that you’re on the right path. Similarly, if your score still doesn’t move, then you’ll probably want to tweak your habits.

One of the best ways to track your progress is with MoneyLion’s credit monitoring tool:

1. Monitor your credit: Leverage easy, free tools designed to help protect and monitor your credit.
2. Stay in control: Get real-time alerts on any updates and changes that can impact your credit.
3. Receive tips: Get personalized tips and solutions to help build, improve, and maintain your credit health.

Tracking your progress is critical because, if you don’t check in, then you won’t know if all your work is actually generating results. 

👉 8 Best Credit Score Apps
👉 How to Dispute a Credit Report and Win

How long does it take to build credit? 🗓️

The time it takes to build or rebuild your credit depends on a few factors, like the current state of your credit, the credit-building remedies you’re using, and how long you’ve been chipping away. While there’s no exact timeline, here are some estimates:

• 30 to 45 days: You’ll likely see slight improvements 
• 6 to 12 months: You’ll likely see significant improvements

It also depends on what’s on your credit report. For example, things like late payments, bankruptcies, or collections can stay on your report for 7 years. If you’ve got any of these on your report, then it might take longer for your report to show progress.

On the flip side, if your credit score is fairly low because you’re only 20 years old and haven’t built up a credit history yet, then you might be able to build credit faster. 

👉 How to Get Bankruptcy Off Your Credit Report Early
👉 How to Raise Your Credit Score by 200 Points

Flex Your Credit-Building Muscles 💪

Here’s the bottom line: building credit is like getting into better shape. You can’t go to the gym once and reasonably expect to wake up the next morning with six-pack abs. 

Instead, your focus should be on making consistent, steady progress. This is why it’s called your financial health, because it’s about building healthy habits.

When learning how to improve your credit score, the formula is simple:

1. Consider applying for a form of credit: Great options include secured cards or credit-builder loans.

2. Stay consistent: Making your payments on time, keeping your credit utilization low, or paying down existing debt are all strategies that are known to increase your credit score. Consistently using any of these strategies is a great way to build your credit score.

3. Monitor your progress: You may want to track your score to see if it’s trending up and to the right. If a few months go by with no progress, then it might be a good idea to change your strategy. 

Sure, mistakes happen (we’ve all missed a due date or two), but the beauty of credit is that it’s not set in stone. Every smart move you make today pushes you closer to cheaper loans, better cards, and more financial freedom tomorrow.

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