How to Build and Improve Credit

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Credit is an essential part of life, as it allows you to borrow money for purchases you may not be able to afford otherwise due to cost or other factors. The ability to effectively build and manage your credit may be the first step toward your dream car or forever home, and today we are going to review some credit essentials you need to know to make the most of your credit.

What types of credit are there?

There are generally two types of credit: revolving and installment.

Revolving credit

Revolving credit can be used and paid down repeatedly like credit cards and lines of credit. With revolving credit, the borrower has a set limit they can spend up to, and payments are calculated based on the amount borrowed.

Installment loans

Installment loans are borrowed in full. Borrowers typically have a set amount of time to pay back the loan plus interest, often with a fixed payment each month. A car loan or a mortgage are common types of installment loans.

Credit Score

What is a credit score and why is it important?

A credit score typically ranges from 300 to 850 and indicates a person's ability to pay back borrowed money. Credit scores can affect your ability to get a loan, buy or rent a house, and even how much you pay towards things like car insurance. Scores are primarily tracked and reported by three U.S. Credit Bureaus: Experian, Equifax, and TransUnion.

The higher the score, the better, as it usually indicates you pay back money and pay bills on time. Having a low score or no score could mean you either have little to no credit history or have had credit problems in the past. In low-score situations, lenders might be hesitant to loan money or could be more inclined to charge higher interest rates (fees charged for borrowing the money), so building and maintaining a good score can help you access capital and save you money in the long run.

How can I check my credit score?

Because your credit scores can impact your ability to take out loans and qualify for a mortgage (home loan), it is crucial to track your score. Here are three ways to do it:

A free credit scoring website

Review your credit report once per year for free by visiting If you choose to use a different site, do your research to make sure it is legitimate, as some scammers create fake webpages to steal personal information. Keep in mind, some websites like the one above do not accept an Individual Taxpayer Identification Number (ITIN) for credit monitoring. However, you can use your ITIN if you submit your request to one of the three nationwide consumer credit reporting companies by mail.

Your credit card provider

Many credit card providers allow cardholders to check their credit scores for free. These tools typically include access to view your score history, see what led to recent changes, or even predict how scores will react to variables such as on-time payments or taking out a mortgage

A nonprofit credit counselor

Credit counseling is a service to help consumers get out of debt and build healthier financial habits. Visit the National Foundation for Credit Counseling to connect with a reputable service provider.

How do I start building credit with credit cards?

Credit cards can be a great starting point for anyone building credit as you can start with low limits and demonstrate you can handle small amounts of debt responsibly month after month. Even if you cannot qualify for a card on your own as an individual borrower, here are a few ways you can still build credit.

Become an authorized user

You can ask a family member or spouse to add you to their credit account. This means you can use the primary account holder's line of credit, but you typically cannot apply for a credit limit increase or redeem rewards. Just make sure the credit card company reports activity by authorized users to take advantage of the credit building opportunity.

Get a co-signer

Ask a family member who has a good credit score and positive credit history to co-sign on a credit card application with you to qualify. It is important to note the co-signer would also be responsible for paying the card balance and any late fees or penalties should the primary cardholder (you) fail to do so. Any late and missed payments could damage both your and the co-signer's score, so be sure to pay on time to help bolster your and their credit.

What do I need to do to get a loan or credit card?

Here are the most common requirements from lenders:

  • Fill out an application. The first document you will need is the loan or credit card application. Each credit application is unique, but in general, you will provide basic personal information and reveal how much you want to borrow or open as a line of credit.
  • Show proof of identity. Two forms of government-issued identification are typically required to prove an applicant is at least 18 years old. Acceptable forms may include a driver's license, passport, citizenship certificate, or military ID.
  • Verify employment and income. Typical forms of income verification to demonstrate your employment history and current earnings include paystubs, bank statements, and employer contact information.
  • Show proof of address. Proving a stable living situation may involve providing a recent utility bill, copy of a lease, or proof of home, rental, or auto insurance that lists your address.

How do I improve my credit score?

Although there are various strategies for improving credit scores, here are a few ways to take control of your credit:

Pay bills on time

Making on-time payments is one of the largest factors in determining credit scores. The more you pay bills on time, the higher your score will likely be.

Keep balances low

Some lenders do not like to see borrowers who max out their credit limits each month, so keep your balance or credit card utilization (the amount borrowed) low. A good rule is to keep it below 30% of your total credit limit, meaning if you have a credit limit of $3,000, you should only use $1,000 or less. Better yet, consider only borrowing what you can pay back in full each month.

Keep unused credit cards open and check for credit report fraud or inaccuracies

In some circumstances, it may be better to keep unused credit accounts open to show a longer credit history and that you have a larger amount of available credit or lower credit utilization. As with all financial accounts, review your activity regularly for any signs of suspicious transactions.

Continuously monitor your accounts for fraudulent activity and verify that the accounts listed on your credit reports are correct. Have any errors corrected right away by contacting one or all three credit bureaus.

Apply for new credit sparingly

Applying for several credit accounts around the same time may signal to a lender you are taking on too much debt or are a potential risk. In fact, your credit score may take a temporary dip whenever you apply for new credit. To avoid a significant score drop, only apply for credit when you feel you need to use it (such as a car purchase).

Diversify your credit usage

It is a good idea to establish both revolving and installment credit to show the ability to handle different types of credit. As always, make sure you can manage the debt you are taking on to ensure steady, on-time payments.

If you are working to build on a poor credit score, here are two ways (among others) to help you get your credit score moving in the right direction:

  • Consult a certified credit counselor. A credit counselor at a nonprofit certified credit counseling agency can help you navigate a financial plan to improve your credit. Visit the National Foundation for Credit Counseling (NFCC) to connect with a reputable service provider.
  • Consider a debt management plan (DMP). If you are having trouble repaying your loans and credit cards, a debt management plan can help. This process involves working with a credit counseling agency to create a manageable repayment schedule that allows you to get your finances in order. The NFCC has a great DMP resourc available online.

There you have it - some credit basics to get you started on your credit journey. Check out our Smart Cents blog to read more articles all about financial literacy, saving, budgeting, and more.


  1. Revolving credit: Borrower has a set limit but may borrow and pay back repeatedly. Payments are calculated based on the amount borrowed each billing cycle. A credit card is a type of revolving loan.
  2. Installment credit: Installment loans are borrowed in full. Borrowers typically have a set amount of time to pay back the loan plus interest, often with a fixed payment each billing cycle. A car loan is a type of installment loan.
  3. Credit utilization: The amount of your available credit that you use each billing cycle.
  4. Authorized user: An authorized user may use the primary account holder's line of credit, but they cannot apply for a credit limit increase or redeem rewards.
  5. Co-signer: Co-signers do not have the ability to use the borrowed money but are responsible for paying the card balance should the primary cardholder fail to do so. They may help the primary borrower qualify for a loan or line.

Credit Bureau Resources


Experian's mailing address for dispute requests is:

P.O. Box 4500
Allen, TX 75013


TransUnion's mailing address for dispute requests is:

TransUnion Consumer Solutions
P.O. Box 2000
Chester, PA 19016-2000

or call 833-395-6941


Equifax's phone number for dispute requests is: 888-378-4329


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Quick read on tips about credit

Quick read on tips about credit