How to Build Credit in 8 Simple Steps (2024)

Building credit from scratch doesn’t have to be difficult. The best way to build credit is to open a credit card, preferably one with no annual fee, and use it responsibly. That means paying your bill on time every month or simply locking it in a drawer. Just having an open line of credit that is in good standing will help you build credit.

But a clean financial slate is a double-edged sword. You could shed months, or even years, off your credit-building timeline and save thousands of dollars if you make the right moves. Or you could quickly find yourself with bad credit if you act irresponsibly. Taking the following steps will help you keep your credit standing headed in the right direction.

Here's How to Build Your Credit:

1. Check Your Credit Report

Regularly reviewing your credit report is a good habit to get into. But it’s especially important to give it a look early on just to confirm that your biographical information is correct and there are no signs of identity theft. You might even find that you’ve already built a bit of credit – from being an authorized user on a family member’s credit card, for example.

The contents of our major credit reports also serve as the basis for all credit scores. So your rating will only ever be as good as your report is. However, you’re unlikely to even have a credit score if you’ve yet to open your first line of credit.

You can get unlimited access to your full credit report, updated daily, by signing up for a free WalletHub account.

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2. Open the Right Credit Card

Simply having an open credit card account will help you build credit. That’s because all credit cards report account information to the major credit bureaus on a monthly basis.

But choose carefully. Plenty of cards have the potential to be more trouble than they’re worth. And blindly applying for credit is counterproductive. Each application results in a “hard inquiry” into your credit history, which can lead to temporary credit-score damage, especially when you apply repeatedly within a short period of time. Your goal should be to apply just once, for the card that offers the best terms for your needs and a high likelihood of approval.

We typically recommend seeking out a no-annual-fee credit card for either people with limited credit or students. If you don’t get approved for either, place a deposit on a no-annual-fee secured credit card, which offers the closest thing to guaranteed approval that you’ll find.

3. Strive to Never Miss a Payment

Payment history accounts for up to 40% of your credit score. This doesn’t directly disadvantage credit novices, as the percentage of payments you make on time is what matters most. But mistakes are magnified when you have limited or no credit history. For example, you’re batting just 83% if you’re late with one of your first six monthly credit-card payments. But making 599 out of 600 payments on time leaves you with an average over 99%.

There are two ways to improve. One is to keep your spending under control. Spending only what you can afford to repay in full each month on a credit line makes missed payments less likely and encourages responsible credit utilization. The other way is to set up automatic monthly payments from a bank account and scheduling them a few days after your paycheck comes in. This ensures that you’ll have enough money to cover the payment and helps you prioritize bills over unnecessary purchases.

Check Your Payment History

4. Build a Financial Safety Net

Budgeting is one of the oldest tricks in the book, though not a very popular one. But without a budget, you can easily find yourself stretched thin or falling behind on savings. Besides, the process doesn’t have to take much time or work. Budgeting for an hour or two every month will go a long way. If you need some inspiration, check out our top 10 budgeting tips and collection of budget templates.

When budgeting, make sure to carve out some room for emergency-fund contributions. An emergency fund gives you a financial safety net, which will catch you in the event of job loss or unexpected expenses that could otherwise wreak havoc on your credit. So aim to save two months’ pay per year, and increase your contributions until you put away a year’s worth of take-home pay.

5. Double Down on Credit & Use Loans as Needed

Once you’ve had your first credit card for at least a year, consider applying for another. Assuming you’ve used that first card responsibly, your credit score should have improved enough for you to qualify for a better deal. Plus, adding another line of credit will increase your total available credit. That will help your credit utilization ratio and, in turn, your credit score.

It’s also important to note that the diversity of your credit experience accounts for about 10% of your credit score. You never want to rush a decision as momentous as buying a car or house. It takes time to groom the credit standing needed for decent rates on a loan, for one thing. But if you’re ready to take that step, it could benefit your credit score in the long run.

6. Monitor Your Credit

No one has time to keep an eye on their credit report 24/7. Two-thirds of adult consumers haven’t even reviewed their credit reports in the past 12 months. But identity theft, financial fraud and credit-report errors can rear their ugly heads at any time. And the longer you wait to address them, the worse the symptoms will be for your wallet. That’s what makes credit monitoring so vital.

Many services, including WalletHub, offer free 24/7 credit monitoring. We’ll tell you whenever an important change is made to your TransUnion credit report so you can see if it’s accurate and take steps to fix the problem if it’s not. This can work wonders for your peace of mind, but it’s not a panacea. It simply makes it less likely that an issue — such as overspending or a mistake on your file — will go unnoticed.

Sign up for Free 24/7 Credit Monitoring

7. Concentrate on Consistency

Credit success is all about consistency. So spend and borrow within your means, and keep your accounts open and in good standing for as long as possible. If you don’t trust yourself to spend within reason and always pay your bill by the due date, you’re better off locking your card in a drawer. (Just beware that some credit card issuers will close your account after a long period of inactivity.)

You can build credit with no balance on your credit card. And there are many options with no annual fee to choose from.

8. Watch & Learn

Significant credit-score gains may be measured in months, but fluctuations occur daily. That's why WalletHub offers free credit scores that update every day. Seeing how, and if, your credit score changes from day to day will tell you a lot about how the process works and what impact certain actions have on your rating. WalletHub’s customized credit analysis will also tell you exactly where you can improve and how to do so.

Get Your Free Credit Repair Estimate

You can and should apply this same principle to your monthly credit-card and loan statements. Keeping a close eye on these documents could help you identify inaccurate charges or patterns of overspending.

Final Thoughts

Now that you know how to build credit from the ground floor, it’s time to go out and do it. If you follow these tips, you’ll be setting yourself up for a brighter financial future and a whole lot of savings.

As you embark on your journey to top WalletFitness®, it’s also helpful to know what not to do. So check out WalletHub’s articles explaining why credit scores drop and the damage that derogatory marks can do.

Ask the Experts: The Building Blocks of Building Credit

In search of more insights into the credit-building process, we posed the following questions to a panel of personal finance experts. Check out their bios and responses below.

• What do you think is the biggest misconception that people have about building credit?
• What is the most common mistake that people make when trying to build credit?
• Do you think it’s easier or harder to build credit now than it was 10 years ago?
• What is the best tip you have for someone trying to build credit from scratch?

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