The Complete Guide to Building Credit — and How to Make Your Credit Score Soar

Let’s say you wanted to snub your nose at the Corporate Global Machine and have vowed to live a noble life, spiritually guided and financially modest. Swearing off debt. Denouncing materialism. But you still need a job, right? You’ll probably need a good credit score to qualify. And yes, you want to live a minimalist life, but you’ve got have cable. I mean, if for nothing more than the Discovery Channel. Credit check. Want to rent a humble casa? Sign here and we’ll see if you qualify.

Regardless of if you want to live a Spartan life in a cabin among the hills, or in the style of The Real Housewives of Beverly Hills, good credit is going to get you there. Here’s the roadmap to credit success.

Beginner steps for building credit

credit cardsLet’s say you’re a fresh-faced novice with nary a nickel. To the world of finance, you’re a screen without pixels. A clean slate. You need to announce your presence:

  • Check your credit report —  Say what? I don’t have any credit and you want me to check my credit report? Yep.  You simply want to make sure that your name is free of any priority identity theft, credit fraud or confusion. It happens more than you might think. If an existing profile for your Social Security number is not available, great. But if something does pop up, you’ll be glad you were able to clear it up before it tainted all the hard work you’re about to do to build a credit rating. Each of the Big Three credit agencies is required by the Fair Credit Reporting Act (FCRA) to provide you a free report once a year.  You can order all three reports at once or rotate your requests among each one so that you can receive a new credit report every four months. There is only one official site for obtaining your free report and it is  Watch out for bogus sites claiming to be the official “free credit report” website.  You can also call (877) 322-8228 to order a free report.
  • Open a bank account – Maybe you only make a few bucks mowing yards or babysitting. Rather than spending every dime, set aside a small portion and open a checking and a savings account. It doesn’t take much. Find a bank or credit union that offers low beginning account minimums and no fees. Maybe it’s a “student” account, whatever. You just want your name on it, signaling a modest beginning to your financial life.
  • Get a secured credit card – Building credit means you have to have credit, so that means you need some plastic. Without a steady income you’re not going to qualify for a credit card, so let’s take baby steps. Apply for a secured credit card. That’s a credit card that requires a security deposit. Say you’ve saved up $200 from summer jobs. Apply for a secured credit card, deposit the $200 to the card and you’re set. You make purchases, and as long as you stay current on repayments, the security deposit remains untouched. You’ll be building a credit history month-by-month. And don’t confuse a secured credit card with a debit card. A debit card draws directly from your deposits and doesn’t build your credit rating.
  • Take out a loan with a co-signer – This may take some convincing, and you’ll probably have to promise your parents that you’ll do a bunch of extra chores, but it’s a good way to start building a credit profile. Go to a lender, perhaps your parents’ bank, and apply for a loan, something small – maybe a new lawn mower for your yard business. With a parent’s signature joining yours on the loan application, you’ll both be responsible for repayment, but if you make the notes on time and payoff the loan, you’ll be taking a step towards a good credit record.

Intermediate steps for building credit

You’ve landed your first full-time job and are ready to build on that credit foundation. Here are your next steps:

  • Check your credit report – What, again?  Yes, remember it’s free and you really want to review your credit report at least once a year just to make sure it’s accurate and error-free.
  • Apply for a charge card – Now that you have a steady, though perhaps modest income, it’s time to graduate from the secured credit card. First, apply for a charge card. A charge card differs from a true credit card because it requires payment of the balance in full each month. Think American Express: their original “green” card is a charge card. Be careful with this type of card, as they usually have no monthly spending limit, but you have to pay it off each month. Pay. It. Off. Each. Month.
  • Or apply for a retail credit card – If the fear of paying the full balance of a charge card every month causes a tight knot in your belly, you might want to consider applying for a store-branded credit card. It’s usually easier to be accepted for one of these cards and your favorite apparel retailer or department store will likely offer them. It can be a good move to accelerating your credit profile. The downside: you’ll probably be charged a higher-than-average interest rate on balances carried forward each month. But if you maintain a manageable balance that you can pay off every couple of months, it won’t be a major expense.
  • Take out a small loan –– Remember that co-signed loan that you got with your parents? Well, since it’s paid off (it is paid off isn’t it?); it’s time to apply for a loan of your own. Now, step over here – look at me, get real close. Only apply for a loan if your budget allows. Back up and read that again, we’ll wait. You see, building good credit doesn’t mean rolling up to the all-the-credit-you-can-get buffet. That’s a twisted road to ruin. Each step in the process to building good credit has to be based on what you can afford. Whether your budget is on the back of an envelope, in Quicken or the smartphone Mint app, you have to know what money comes in (income) and what money goes out (bills). Don’t make me say it. Spend less than you earn. A lot less. There, I said it.

Advanced steps for building credit

We’ve done the hard work: planting the seeds for a great credit profile. Now we just water and wait. Remember, time is one of the most important factors of a good credit score: prompt payment to creditors month after month after month slowly builds your excellent credit reputation. By now, maybe you’ve gotten a little bump in salary. You’re paying your bills every month and have a little left over in savings. Here’s where we can rise above average in credit class.

  • Get that first real credit card – Now you can apply for an unsecured credit card and dump the pretenders.
  • Use less than half of your available credit – If your Visa card has a $1000 credit limit, force yourself to use no more than $500 of the spending power. Having the available (untapped) credit enhances your credit score.
  • Pay off the pretenders – With your authentic Visa or MasterCard in your hand you can pay off the secured credit card as well as that store-branded retail card. You don’t need them; they’re just another pesky bill to pay at this point.
  • Don’t close unused accounts – You’ve paid them off, but don’t close them. Cut the unused cards up, sure – but leave the account active. Remember, having available credit raises your credit score. And the older the credit card (with prompt repayments), the more important it is to your credit rating. Your credit history has to have a history to be a history.
  • Pay early, pay often — Never be late on a payment. A past due dings your credit report for seven years. Make monthly payments early when you can, just to be on the safe side. Get a bonus or a little birthday cash? Splurge with some of it and use the rest to pay down your debt. Your credit score will soar.

Time is on your side

Building good credit is a slow process. Mistakes (like late payments) are costly. Take each credit building step carefully and use online tools like those available at to see what factors will most positively boost your credit score. And two reminders: check your free credit report at least annually – and (did we mention this?) pay your bills on time.