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How to Build Credit

No matter where you're at in your financial journey, there's a path to reaching financial freedom, and learning how to build credit is key to a healthy financial future.

Author: Abby Butkus

November 1, 2022|Blog

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Your credit is your reputation with lenders. It includes the historical records of any time you’ve borrowed money, and all of this is summarized into your credit score. A good credit score can help you get approved for a car loan, mortgage, or credit card. It can help you qualify for an apartment rental, and allow you to borrow money at more favorable interest rates, saving you money. Building credit can be difficult, especially if you don't have a credit history, but it’s not impossible. There are several ways to build your credit score, and we’ll share all the tips and tricks you can use to improve it.

A Good Credit Score Matters

Many people don’t think about their credit score until they need it.

When you want to finance a car or a house, your credit score is one of the first things lenders look at - along with your income, expenses, and employment history—to determine whether to approve your loan and how much interest to charge you. Did you know two people could go to buy a car from the same dealership at the exact same time but one could be offered a 3% auto loan and the other a 12% auto loan? That's a huge difference!

A good credit score can save you money on interest and help you get approved for loans, while a bad credit score can make borrowing more expensive or even impossible.

That's why it's essential to understand how credit scores work and what you can do to improve yours. There are many ways to build credit, but using and paying off a credit card for your everyday purchases is one of the most common and effective methods.

Building Your Credit from Scratch

If you don’t have a credit history, don’t worry! It takes time, but if you start now there are a few things you can do to start building your credit history today and make it easier to get approved for a loan or credit card in the future.

  • Start making your everyday purchases on a credit card. If you’re struggling to get approved for an unsecured credit card, consider a secured credit card. These cards require you to place a deposit in order to open the account, which the card company holds as collateral in case you default on the card. Secured cards are easier to get than unsecured cards, and can help you build your credit if used responsibly. But keep in mind that most secured credit cards only allow your spending limit to be the same as the amount you deposited. 

  • Become an authorized user on someone else's credit card. As an authorized user, you can use the card, but are not legally responsible for the debt. You’ll need the permission of the primary cardholder to become an authorized user, typically someone you trust.  Both cardholders share responsibility for paying off the loan, and any missed payments will hurt both of your credit scores.

  • Get a cosigned loan. If you have trouble qualifying for a loan or want a lower interest rate, applying with a cosigner can help. The cosigner, typically a family member or close friend, agrees to be held responsible for repaying the debt if you default on the loan. Cosigned loans can help you build credit if you make all your payments on time. But if you default on the loan, it will also damage both your credit and the cosigner’s.

  • Report payments you’re already making on your utilities, phone bill, and rent. Tools like Experian Boost allow you to show the credit bureaus your history of paying your bills on time. You can also ask your landlord or building management company if they are able to report your rent payments.

Building credit takes time and patience, but it's possible to raise your credit score quickly even if you're starting from scratch.

Using Your Credit Card Wisely

If you're new to credit or are working on rebuilding your credit, using a credit card is one of the best ways to establish a positive credit history. Just like a good driving history is important to lower your car insurance bill, lenders want to see responsible credit management over time to give you better rates and more access to credit. Using a credit card responsibly can improve your credit score and build a good credit history. Here are a few tips for using your credit card to build credit:

  • Pay your credit card bill on time: This may seem like a no-brainer, but it's important to remember that payment history is the most significant factor in establishing your credit score. Setting up automatic payments or putting a reminder on your calendar to pay your bill by the due date can help you avoid missed payments.

  • Pay down your balance: Another factor in your credit score is credit utilization, which is your total outstanding balance compared to the total credit you have available. To keep your credit score high and debt low, pay off as much of your balance as you think you can afford each month. Try to pay off your full balance every month to avoid being charged interest.

  • Choose the right card: When applying for a credit card, look for a credit card with low fees and interest rates. Some cards with higher fees promise a lot of rewards, but if you’re looking to build your credit and credit history, low fees and interest rates are most important.

Following these tips is sometimes easier said than done, but in the long term, using a credit card responsibly can end up being pretty rewarding.

Monitoring Your Credit Score

Now that you’re building credit like a pro you can just sit back and rela… not so fast. Once you have the basics in place, it’s still important to check your credit score at least once per year for errors. An error can hurt your credit score and rectifying the error can give you an immediate boost. 

You're entitled to one free report annually from each of the three major credit bureaus: Experian, Equifax, and TransUnion. You can get your reports for free at or check your score any time on your Arro app. Once you have your reports, review them carefully to ensure no errors. If you find an error, dispute it with the credit bureau immediately.

Common Mistakes People Make When Building Credit

There are a few common mistakes people make when trying to build credit, and avoiding these will accelerate your credit score growth.

  • Using a debit card instead of a credit card. Debit cards don't help you build credit because they're not reported to the credit bureaus.

  • Closing old accounts. This can hurt your score because it lowers your overall available credit and can shorten your average account history, two factors that make up 15% of your FICO® Score. So even if you don't use an old credit card, it's generally best to keep the account open.

  • Not monitoring your credit reports and score. You can't improve your credit if you don't know where you stand. So check your credit report at least once a year to ensure there are no errors and to see where you can improve.

In conclusion, if you want to build a strong credit history, you need to start by getting a copy of your credit report and making sure there are no errors. Then, focus on paying all your bills on time and keeping your credit card balances low. Finally, monitor your credit report regularly. By following these steps, you’ll be on the path to a better credit future.