How to Build Credit: 7 PROVEN Ways

Whether you’re looking to buy a new house, a new car, or investing in a business, you will need to show good credit history. Your credit history shows how responsible you are for repayments. Without a good credit history, it’s almost impossible to purchase an asset or make investments.

However, building credit is not easy. If you’re wondering how to build credit, we have put together the most effective ways to build credit fast. Read on to learn more.

How to Build Credit?

There are various ways to build credit. Below, we have listed X effective strategies that you can use to build credit:

1. Learn How Credit Works

The first step towards building credit is knowing how it works. Your credit score is determined by the information reflected on your credit report. This information changes depending on when the credit score is calculated. 

While there are multiple ways to calculate your credit score, the main factors that go into calculating it include your payment history, credit mix, credit utilization rate, credit age, and your current credit accounts. 

2. Get a Credit Card

Getting a credit card can also help you build credit as credit cards are open-ended loans. When you apply for a credit card, your lender will find out your credit history by taking a look at your credit report. 

If you haven’t used credit much before, there would be nothing to look at, which can make it difficult for the lender to approve your application. 

However, there are some credit cards that are specifically designed to fit this type of situation. These include secured credit cards, cards for average credit scores, and student credit cards. 

3. Check Your Credit Mix

Your credit mix makes up about 10% of your credit score. It represents the different types of credit you have under your portfolio, such as installment loans and revolving credit.  

The more diverse your credit mix is, the better your chances will be of building credit. You can use an online credit score simulator to find out how adding different types of credits can affect your credit score. 

4. Be an Authorized User On Someone Else’s Credit Card

Becoming an authorized user on someone else’s card is also a great way to build credit. Although the primary cardholder remains responsible for the payments, an authorized user has access to their credit account and a supplementary card.

If you have positive spending habits and the credit card issuer reports them to the credit bureaus, it could impact the credit positively. 

5. Report Your On-Time Bill Payments

If you pay all your non-credit bills on time, you can ask your utility provider to report your payments to any of the major consumer reporting agencies (CRAs). While these bills aren’t reflected on your credit report, on-time payments help you build a good payment history.

Many utility companies do report on-time payments to CRAs like Equifax, Experian, and TransUnion. You can also ask any buy now, pay later (BNPL) programs you may have signed up for in the past to report your on-time payments. These programs are designed to facilitate large-ticket purchases by dividing them into multiple, smaller payments.

6. Develop Healthy Credit Habits

No matter whether you’re a beginner at building credit or a pro, it’s important to stay mindful of your spending habits. 

You need to be responsible for making repayments. Credit-scoring companies regard your payment history as the most important factor in calculating your credit score.

In addition to making on-time payments, you also need to create a budget and stick to it. Being mindful of where your money goes and staying within the credit limit every month can help you achieve your financial goals and make sure your loan or credit card payments are taken care of.

Lastly, always try to pay more than the minimum amount due. The more dues you pay on time, the lower your interest costs will be.

7. Get a Credit-Builder Loan

Last but not least, you can apply for a credit-builder loan (CBL) to help you build credit. Credit-builder loans are specifically designed to help borrowers build a strong credit history. They require you to make payments before receiving the money. 

Many credit unions and online lenders offer CBLs. When you apply for a CBL, you will need to deposit a small sum of money into a locked savings account. Then during the course of your loan term, you will be making small payments every month.

Once your loan term ends and you have paid all the payments, the entire sum of your money will be paid out. As you make on-time payments on your CBL account every month, they will be reported to credit bureaus. As a result, you will end up building a healthy credit report.