Build your credit score

Some financial gurus argue that a credit score is really just a debt score. On one level, this perception is correct. Your credit score does have a lot to do with how well you manage debt. But the idea that you must take on debt over the long term in order to build your credit is, frankly, wrong.

In fact, you can start building your credit score — or improve your current score — without paying interest on debts or carrying debts over the long term. First, let’s talk about some strategies to build a credit score without taking on any debt. Then, we’ll make the argument for why taking on small amounts of debt can be a good thing for your overall financial health.

The Best Six Ways to Build Your Credit

1. Become an Authorized User

When you open a credit card, you’re often given the option to add someone else as an authorized user on that account. This basically means that the person is allowed to make charges to your account. An authorized user typically gets their own card with their name on it, and they have basic privileges like reporting a lost or stolen card and making payments on the account.

There are a couple of advantages to being an authorized user. One is that you’re not financially responsible for the account, even though you can use it. If the account goes past due, the credit card company isn’t going to come after you for payments.

The other advantage is that the credit card payment record and balance will typically show up on your credit report. (This may not always be the case, though, so be sure to read the card’s terms and conditions before you decide to become an authorized user.) On-time payment history is a HUGE part of your credit score, so hitching your wagon to a responsible card user can work wonders.

As an authorized user, you can basically count someone else’s good credit as your own, which is a great way to build your credit score. Of course, the cardholder’s bad credit would also count as your own. You have to be careful here and keep a close eye on the account. If the cardholder starts carrying a high balance or stops making payments on time, it could tank your burgeoning credit score.

Your best bet here is to only become an authorized user if you know the cardholder is responsible. Then, keep tabs on the account information, including the card’s balance and payment dates. Finally, be sure you know how to remove yourself from the account in case things go south.

2. Add your rent payments to your credit file

Newer credit scoring formulas are beginning to include rental payments as a payment record. After all, if you make your rent payment on time each month, that’s very similar to responsibly handling installment debt like a mortgage.

Not all credit scoring algorithms are set up to include rent payments as part of your credit score, but it is becoming increasingly common. In fact, FICO recently started counting rental information, if available, in its FICO 9 score.

Even if you’re looking at a score that does include rental payments, though, getting that information into your credit file can take a little finagling. Most landlords don’t report on-time rent payments to credit bureaus (though many will report major delinquencies!). In order to get your rent payments counted in your credit file, you may need to use a third party rent tracking system.

3. Give Yourself a Loan

One of the newer developments of the FinTech industry is the ability to build your credit score by giving yourself a loan. It’s a rather simple and elegant idea really; you create a loan term and make monthly payments toward the loan. When all payments have been made, the money is returned back to you and each month you’re recorded as having paid the loan. Up goes the credit score.

Self was the first company that thought of this idea and they’re still the highest regarded brand in the space today. The loan term is 24 months and each month, they will secure your funds in a credit-builder account. At the end of the term, your funds are returned (minus interest + the application fee) and you’ll have two positive years of payment history.

Keep in mind that this can backfire if you don’t make your regular monthly payments. Self keeps the payment amounts small enough where careful planning shouldn’t allow that to happen. More than 3 million consumers have taken advantage of this program and have seen an increased credit score of more than 40 points (on average).

4. Pay Down Debts You Already Have

You don’t necessarily have to take on more debt to build your credit if you’re already dealing with some debt. For instance, you might be working on paying down student loans. They’re a really common first type of debt for consumers since the majority of college students graduate with debt.

Related: Good Debt vs Bad Debt

When you’re already dealing with installment loans like these, your best practice is to keep paying them down, month by month. Make all your payments early or on time, and don’t miss any.

Paying down installment debts early doesn’t necessarily boost your credit score, though, so keep this in mind. However, continuing to make on-time payments and lowering your overall debt will slowly, and steadily, increase your credit score.

There is a strategy you can use that might boost your credit score if you have multiple student loans. By consolidating or refinancing several student loans into one, you’ll reduce the number of loan accounts with open balances. That will generally increase your credit score, and almost immediately.

To refinance or consolidate multiple student loans, check out Credible. It’s an online student loan marketplace where you’ll be able to get rate quotes and pre-qualifications from up to 10 different student loan lenders. That will be the best opportunity to get the lowest possible rate and monthly payment.

5. Open a New Credit Card Account

Now you’re probably thinking, Wait a minute! I thought you said we were going to build credit without going into debt. That’s absolutely right. But you can have a credit card account without actually carrying any debt.

In fact, this is the smartest way to manage a credit card. You can use the card for a few expenses each month, and pay it off at the end of the billing cycle. In this way, you’re not carrying any debt or paying any interest. (Bonus: If you choose the right card, you could rack up some serious rewards while you’re at it!)

Having a credit card with no balance could be the best way to bring up your credit score without adding debt to your portfolio. Not only will you get credit for making on-time payments, but you’ll also get credit for your low debt-to-credit ratio.

Related: Best Credit Cards for Fair Credit Credit Scores 580-669

Your debt-to-credit ratio is basically how much debt you have, compared to how much credit you have available. Carry a $0 balance on a card with a $1,000 limit, and your ratio is 0%. Carry a $500 balance on the same card, and your ratio is 50%.

Even if you have no credit history right now, you could start out with a secured credit card, which requires a deposit to open. You can get a secured card with no credit history. If you use it but pay it off in full every month, you could build your credit score relatively quickly.

Capital One Platinum Secured Credit Card

My favorite secured card is the card_name. You’ll receive an instant decision when applying and you can beat the $0 annual fee. A security deposit will be required when opening the account and so long as you make your payments on time (and pay your balance in full), you will build your credit score without paying anything in interest or fees.

6. Use an Alternative Credit Score

The problem with establishing credit for the first time, as we’ve said, is that you have to get credit to create a credit score. But if you’re starting from absolute zero, that’s tough. That’s where alternative credit scoring models come in.

PRBC (Pay Rent Build Credit) is a consumer reporting bureau like Experian or TransUnion. But instead of tracking your credit information, it tracks your payments on things like rent and recurring bills. The score provided by PRBC ranges from 100 to 850.

To set up an account, you’ll have to manually link your utilities, phone, and other accounts. You could also consider linking a prepaid credit card to your PRBC account so that it can track your payments to that account. Then, you can access your credit report and score.

The use of this scoring model is fairly limited, but about 8,500 companies nationwide will accept this alternative credit score when deciding whether or not to extend credit to customers. So you could get credit based on your PRBC score. That credit will then help you start building a traditional credit score.

Because it’s not widely accepted, the PRBC score is of limited value. But it can help you get to the goal of opening a credit account or two, so that you can build up your traditional credit profile.

Each of these five options gives you a way to build a credit history without paying any interest on debt. But is there a reason you might want to actually pay interest in order to build your credit? Yes and no.

Why You Should (or Shouldn’t) Pay Interest to Improve Your Credit Score

Any time you talk about taking on a debt that you’ll pay off slowly, you’ll have to pay interest. (Unless, of course, you’re looking at a 0% APR promotional period on a credit card.) Whether it’s a low-rate, $1,500 loan or a credit card with a high balance, you’ll pay more than you took out in the first place.

That’s why it’s normally best to avoid taking on interest-bearing debt whenever possible. With that said, though, there may be a case to be made for taking on a little bit of interest-bearing debt in order to increase your credit score.

One part of the basic credit scoring model looks at how well you manage different types of debt. While it’s not generally recommended to take out new types of debt just to boost your score, sometimes it could be a good idea. For instance, if you’ve never managed an installment loan, like a student loan or a car loan, taking on a small auto or personal loan could help build your credit score over time.

This is a technique to use if you need to increase your score relatively quickly, like if you’re in the market for a house in the next year or two. However, you shouldn’t take on debt you don’t really need to use on a regular basis.

Learn More: What Credit Score Do You Need to Buy a Home?

No matter where your credit stands today, there are a few basic ways to ensure that it inevitably improves. Make payments on time, don’t hold balances from month to month, keep your credit utilization low, and don’t rack up too many inquiries in a short period of time.

Sometimes in life, as is the case with your credit score, the best way to see growth is to stay consistent. And whatever you do, don’t take on unnecessary debt!

Related: 3 Lesser Known Ways to Improve Your Credit

Next Steps

One of the first things you’ll want to do to build your credit is sign up for Experian Boost™. This free service will track your on-time utility and mobile phone bills. Before, this information had no impact on your credit score but now it can give it a real boost. As long as you’re already in the habit of paying your bills on time, this can only positively impact your FICO Score.

Read our Experian Boost Review


  • Abby Hayes

    Abby is a freelance journalist who writes on everything from personal finance to health and wellness. She spends her spare time bargain hunting and meal planning for her family of three. She has a B.A. in English Literature from Indiana University Purdue University Indianapolis, and lives with her husband and children in Indianapolis.