The Best Way to Build Credit

in Spend by Lacey Langford, AFC®

You need good credit for things like insurance discounts, borrowing money, saving on interest rates, and in some cases to rent an apartment, but how do you even build your credit?

The best way to build credit is first to understand how credit and your credit history work. Then you want to pick a method for building credit based on your needs and use it responsibly.

I’m going to go over what good credit is, why it’s essential, and how to build good credit. I’m also going to walk you through how to get a free copy of your credit report.

What Is Good Credit?

I know me and every other financial professional tell you to have good credit, but what does that mean? First, you should know, your credit report and credit history are the same things. They’re a record of your behavior with debt. It’s your money history, and depending on your money behaviors, your report can be good or bad. The better your credit is, the better terms you can get for credit.

Your report shows the money you’ve borrowed and your payment history. It tracks whether or not you paid on time and the types of credit you have. Your report contains your basic information like your name, social security number, and address, as well as five key areas that determined your credit score.

Your credit score is a three-digit number that uses those five key areas to determine how likely you are to pay your bills or meet your financial obligations. The higher the number, the better your credit is considered. The five areas are:

More on money: Budgeting and Money Management Basics

Payment History

Your payment history makes up around 35% of your credit score. That’s why on-time payments are so important—they carry the most weight. Paying your debt on time reflects positivity on your credit score and will improve it over time. In comparison, late payments or no payment will have a negative impact and reduce your credit score. Your payment history helps lenders determine if you meet your financial obligations.

Amounts You Owe or Credit Utilization

Your credit utilization or the amount of money you owe is 30% of your credit score calculation. It factors in your revolving debt like credit cards and loans you have available and currently using.

To calculate your credit utilization ratio, you add up all the balances for your debt and add up all of your credit limits from your current credit report. Then you divide your total balances by your total limits to get your credit utilization ratio. The lower your credit utilization is, the better your credit score will be. Yes, the lower, the better, but you at least want it to be below 30%. Anything higher shows you may have a hard time making payment on any new debt you take on.

Age or Length of Credit

The age of your credit accounts for 15% of your credit score. How long you’ve had active credit accounts helps lenders determine if you’re an acceptable credit risk. The longer your accounts have been open, the better your credit will be because you have a long history to review. That’s why it’s essential to keep the account you’ve had the longest open

Types of Credit

The types of accounts or your credit mix account for about 10% of your credit score. Different credit types would be installment loans like car or home loans and revolving credit like credit cards. There is no perfect combination here, so you don’t need one of each—just a record of you making payments on various types of credit.

New or Recent Credit

Recent credit makes up 10% of your credit score and shows how frequently you’ve applied for new credit in the past two years. And how frequently you’re applying for new credit. The more recent and often you apply for credit can be seen as increased credit risk.

What is a Good Credit Score

Scoring models vary, but in general, a good credit score is in the range of 670-739. The total range of credit scores in anything from 300 to 850. With 300 being considered poor and 850 excellent.

Here are all the ranges:


VantageScore vs. FICO Score

FICO and VantageScore are the two leading competitors in the credit scoring industry. Both companies have software that analyzes a person’s credit history and produces a credit score based on the scoring model.

Both companies provide three-digit credit scores from similar scoring models, but they aren’t exactly the same. VantageScore was credit by the three credit bureaus: Experian, TransUnion, and Equifax. Because of that, their score pulls information from all three bureaus to give you one score. While FICO creates a score based on the data from each of the three credit bureaus. So you’ll have three numbers that may vary slightly.

Another difference between the two scoring companies is that to get a FICO score, you have to have active credit for at least six months. With a VantageScore, you only need to have one open credit account to get a score, even if it’s been open for less than six months.

Why You Should Care About Good Credit

Good credit saves you money—period, dot. When you have good credit, you pay less interest, have lower payments, and in some cases aren’t required to make deposits on utilities. Good credit also allows you to borrow money, get insurance discounts, rent apartments or homes. And whether you’re on active duty, a reservist, member of the guard, or a veteran, good credit is an essential factor to getting and maintaining a security clearance.

More on clearances: What to Know About Your Security Clearance and Your Money

The Best Way to Build Credit Fast

When you’re just starting and have little to no credit, you’ll have a low credit score. Even if you’ve never made a late payment, your score will be low because there isn’t enough credit history for lenders to determine if you’re a risk. They don’t know you yet, so it will take time to build your credit. So how do you build credit when you’re new to credit.

Get a Copy of Your Credit Report (Dispute Errors)

The first place to start building good credit is to get a free copy of your credit report and check for errors. You need to know where you’re starting. You may already have bad credit history and not know when you’re starting. Unfortunately, in some cases, family members steal identities because of their bad credit. It’s wise to review and check for errors from the get-go.

Get a Credit Card

You can start building credit by getting a credit card with a low limit. I’m not crazy about the idea of getting credit cards to build credit so if you go this route—be responsible! Making small charges and paying off the balance monthly can help develop your credit. If you’re just starting out, you may need to have someone cosign. Or you can ask to be an authorized user on a parent or loved one’s account.

You can also get a secured credit card that is attached to a savings account. The savings account’s money is collateral if you don’t pay back the money you spend. Do the same thing as you would with a regular credit card and make small changes that you pay off monthly.

More on credit cards: How to Use Credit Card Rewards Wisely

Pay Student Loans On Time

If you have student loans, paying them on-time and in full is one of the best ways to build credit.

Credit Builder Loan

Credit builder loans are a good way to develop your credit history. They work like secured credit cards. You deposit a set payment each month, and then you’re able to borrow money against that amount. Your on-time payments are reported to your credit history.

Ask To Pay With Credit

When you have a bill due, ask for credit. Utility companies and rental agencies don’t typically report your on-time payments to the credit agencies. Unless you don’t pay, then they report the amount you’re behind on. A good way to build your credit is to ask your rental office or utility company to report good payment history to the agencies to build your credit.

Keep Credit Cards Open

If you set up a credit card, don’t close it. Keep it open. The longer you have a card open means, the longer your credit history will be. Remember your credit history is a big percentage of how your credit score is calculated.

More on credit: How to Get Yourself Out of Debt

Tools and Resources to Build

When you’re trying to find the best way to build credit, every little bit helps. Here are a couple of tools you can get some assistance from.

Experian Boost

Experian Boost is a free program offered by Experian, one of the three credit bureaus. With Boost, you get credit for on-time payments for utilities, cell phone services, and some streaming services. They help report good payment history for things like Netflix and your rent. You do have to connect your bank account to use Boost. But once you do that, you select the positive payment you make, and then it goes to your credit report.

The best way to build credit fast


Self helps you build credit by first applying for a small secured loan with their partner bank. The bank then secures your money in a certificate of deposit account for 12-24 months. Then you repay the loan based on a repayment plan that fits your budget. Every time payment’s made, it’s reported to the three credit bureaus. With each on-time payment, you build your credit.

How to Get a Free Copy of Your Credit Report

Each of the three credit bureaus, Transunion, Equifax, and Experian, will give you a free copy of your credit report every 12 months. Getting a copy of your report every 6 to 12 months is a good idea to check for any errors and to make sure you don’t have any items on your report that aren’t yours. Here are the steps to get a free copy of your credit report.

FYI. does not give you your credit score—only your credit report.

Here’s the Bottom Line

Your credit report is an outline of your money history. Your credit score is the rating credit agencies give you to let others know how you handle your finances. When you build good credit, it helps you save money, get better terms, and have financial opportunities.

If you want to “kickstart” your finances in the military, you can get access to my free Financial Kickstart Kit here.