Building Credit Complete Guide | How to Build Credit | Roost
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Ultimate Guide to Building Credit

Building credit and earning a good credit history is right there under maintaining your health on the list of important things to do in life. Your credit history influences nearly every aspect of your day-to-day living including where you work, how much you pay for a security deposit, car insurance, and many other expenses.

A classic joke about credit is that “credit is available to those who don’t need it.” Credit is most available to those who make regular payments and do not carry a lot of debt, and not to those who “need” money. To get yourself into the great position of being able to qualify for good credit and competitive loan terms, you need to build or improve your credit.

Regardless of your income, there are steps you can take to improve your credit. For example, if you are

  • Low-income, you can avoid debt and get those things you do pay for contributed towards your credit history.
  • Financially disciplined, you can carefully use credit to build your credit history.
  • Already in financial trouble, you can dig your way out.

“Wealth is not about having a lot of money; it’s about having a lot of options.”
– Chris Rock

Credit statistics

  • According to Experian, the average FICO score is 711, which is considered “good”
  • Millennials have an average credit score of 680; Gen Z-ers have an average score of 674
  • The average mortgage interest rate for a FICO score of 760-850 is 2.52%, low credit scores of 620-639 is 4.11%, or 1.59% higher
  • The average credit card APR is 14.65%, those with poor credit may have to pay over 20%
  • In the US, the average credit card debt per household is $5,700
  • The average time to pay off student loans is 20 years
  • According to the Society for Human Resource Management, 13% of employers check the credit of all potential hires, and 47% of key hires

Get a copy of your credit report

If you have no idea what your credit score is or what debts you owe, you can access a free credit report. Hopefully, your credit report is accurate. If not, you can take steps to repair the inaccuracies. The three major bureaus for you to get an annual credit report include: TransUnion, Experian, and Equifax provide information on how to dispute information included in your credit report.

If your credit report is accurate, you can monitor your progress using an app such as Credit Karma, Credit Sesame, or Mint. These apps check your credit using a “soft” method, which does not hurt your credit score. If you need to pay down credit balances, consider paying down your debt using proven methods for paying credit card debt. Using these strategies, you end up paying less interest in the long run while building credit.

Working on your credit?

Related article:

Why is my credit score important?

Explore the reasons why your credit score contributes to almost every aspect of your life.

5 Main factors affecting your credit score  

According to Experian, your FICO score is created using the following criteria:

  1. Payment history: 35 percent
  2. Amount owed: 30 percent
  3. Length of credit history: 15 percent
  4. New credit accounts: 10 percent
  5. Credit mix: 10 percent

As you can see, the two things you can do that most impact your credit score are making your payments on-time and keeping low balances (or paying them down). Young people, on average, have lower credit scores because their credit histories are short. Only time can fix that. Credit mix refers to the kind of debt you carry. Your score will be higher if you have a good credit mix such as a car loan, credit card, student loan, and personal loan that are all in good standing.

In the past, some people didn’t worry much about their credit score if they were not planning on obtaining a line of credit. However, nowadays, your credit report may be reviewed for reasons beyond applying for a loan. Many employers check your credit report as part of the hiring process. Insurance companies may offer better rates to those with good credit. Utility companies may review your credit to determine if a deposit will be required. In some areas, even your credit score is used for renting. Your credit score impacts nearly every part of your life. 

So, even if you don’t plan on applying for a mortgage or car loan, you’ll still benefit from building credit and good credit history. Having a good credit score can help you get a new job, lower your interest rates, or buy a new home.

Related article:

How do credit scores impact my financial future

Credit scores impact the job you can get, where you can live, and how much interest you’ll pay.

Should I take on debt?

If you have no debt, congratulations! However, you may be considering taking on a bit of debt to start building your credit history. Before accepting a credit card offer or car loan, carefully evaluate yourself. Are you an impulse buyer? Do you routinely add to your savings? Are you prone to making payments late? Many people build credit by using a credit card and paying off the balance every month. If you are not disciplined enough to use this strategy, this option may be dangerous for you.

One way to test your financial discipline is to put what you would be making in debt payments into savings. For example, if you are considering taking on a $400 car payment, put $400 into savings per month for a year. This exercise tests your discipline while also building a nice vehicle loan down payment. It is a good financial exercise and results in a win-win situation.

How to build credit

If you have limited income or credit history, you can still build your credit without taking on debt. Start building credit by,

  1. Paying your bills on time: This is the most important thing you can do. Schedule to make your payments early or by automatic payment, so you never miss a payment.
  2. Making frequent payments: Some choose to schedule payments twice per month or per every paycheck to ensure payments are made, and balances decrease easily.
  3. Getting a cosigner or become an authorized user: If you cannot obtain a low-interest loan on your own, you can build credit by having someone cosign on a loan for you or by having a trusted person add you to one of their accounts.
  4. Applying for a secured credit card: You will need a bit of cash to get a secured card, but a secured card will help you build your credit.
  5. Asking for a credit increase: A credit increase helps your credit score by increasing your available credit. The key is to not use that credit.
  6. Applying for a credit builder loan: Credit builder loans are kinda like a “backwards” loan. You pay the balance and interest first, and then you get the money. It helps you build credit with no risk for the lender.
  7. Getting your rent payments reported to the credit bureaus: Normally, rent payments are not reported to credit agencies. However, you can use a rent reporting service to build credit by paying rent.

Consolidation and personal loans

If you have a lot of debt to manage, you may be considering a consolidation or personal loan. Personal loans are beneficial because they often offer lower interest rates than credit cards, and payment amounts and pay-off dates are predictable. For example, rather than making five different payments on five credit cards, you could make one payment per month towards a loan that paid off all five card balances. Personal loans help with building credit by increasing your amount of credit available and by adding on-time payments.

Once again, financial discipline matters here. In many cases, the personal loan company cannot “force” you to pay off your cards, and it can’t stop you from using your cards after you pay them off. To make this debt-reducing strategy work for you, you need to pay off the cards and then not use them.

Related article:

10 Answers to common questions about credit

Find an answer to your hottest credit question.

Should I buy a car using credit or cash?

You may be wondering if you should pay cash or finance a car.  Paying cash or financing a car depends on your situation. If you have bad credit, it is way cheaper to pay cash than pay credit-card-interest rates on a car loan. While paying cash for a car doesn’t help with building credit it helps keep you out of debt. If you have good credit, you can get a low-interest auto loan on a used card and pay it off within a few years. If you have good credit and a sizable down payment, you can get a low-interest car loan on a new car and drive off the lot with a bit of equity.

Of course, the problem is, as noted above, is that credit is most available to those that don’t need it. If your budget is tight and your credit rating marginal (but you HAVE to have a car), consider a car-buying hack. For example, you could work a delivery job a few hours per week to help you make your car payments. Or, you could consider co-buying the car and sharing the expenses. Keep in mind that insurance rates are higher on financed cars.

Leasing a vehicle is not advantageous for most. It is suitable for those who want to drive a new car every couple of years and can afford to “rent” the car without ever having the benefit of owning it.

Related article:

Lease guarantor and co-signer products compared

If you need help qualifying for an apartment lease, there are co-signer services available to help you.


Many who are burdened with a lot of debt may be considering bankruptcy. While declaring bankruptcy may seem like an easy way out, it is not suitable for everyone. First, it is intended for those who really have no means to pay their debt. Second, it is often not worth it unless you have a LOT of debt. A lot of debt is over two times your annual income. If you earn $70,000 per year, a lot of debt would be $140,000 or more.

Bankruptcy and government debt

The type of debt also matters. Not all types of debt can be “written off.” It should not surprise you that tax and government student loan debts cannot be included. You also cannot wipe out alimony or child support debt. Most don’t carry hundreds of thousands in credit card debt making bankruptcy not a good option for most. 

Bankruptcy and medical debt

A circumstance that commonly leads to bankruptcy is medical debt. If you have racked up over $200,000 in medical debt and have no means to pay it, you may benefit from consulting with a bankruptcy lawyer. Those who become permanently disabled and cannot work to their full potential may also want to consider this option. 

If you earn an average wage and owe $30,000 in credit card debt, you may just need to buckle down and tackle that debt. Paying down your debt in the traditional manner helps with building credit by lowering debt, increasing credit available, adding on-time payments, and lengthening credit history.

Need to repair your credit?

How to get rent added to your credit report?

Generally, paying rent does not improve your credit score — which is frustrating since rent is often nearly $2,000 per month! To help you build positive credit by paying your rent, you can add rent to your credit score by using a credit reporting service.

These services are not free, but likely cheaper than dealing with managing credit card debt. Services charge less than $10 per month and may charge a one-time fee. To use these services, you may need to sign up for automated rent payments. This type of service is super helpful to those that pay rent on time, but cannot afford to take on debt.

If you are lucky, your rental agency may offer these services to you for free. Some services such as ClearNow and PayYourRent are supported by landlords and free for tenants. Services such as LevelCredit also provide credit reporting for paying utilities.

Related article:

How rent impacts your credit

Are rent payments reported to credit agencies? Find out.


You want to avoid a granishment as much as possible! While paying rent and utilities does not usually affect your credit score. Not paying them will. If you end up in a bad situation where you cannot pay your rent and utilities you could be sued by your landlord for the money owed. If you lose in court, you may be ordered by the court to pay what you owe plus damages (court and lawyer fees). This legal action is called a judgment, which can lead to wage garnishments.


Judgments no longer appear on credit reports, but your debt obligation can greatly affect your financial situation. Federal law dictates that a garnishment can be up to 25% of your disposable income or the amount your wages exceed 30 times the federal minimum wage (whichever is less). Ouch. A garnishment may make it hard for you to keep up with your other bills. You’ll want to do everything possible to avoid a garnishment. 

Tax debt

Tax debt can also lead to a garnishment. The IRS can take a pretty large portion of your wages. Avoid tax debt by every means possible. Again, a garnishment may make it more difficult to pay your other bills.  

To add to your challenging situation, some employers will terminate employees who have more than one garnishment. You are legally protected if you only have one garnishment. 

What a mess. Again, avoid this situation if at all possible.

How debt impacts your credit

Your debt balance contributes to 30 percent of your credit score. Calculations for creating your credit score take into account your balance and credit utilization. Credit utilization is the ratio between your debt balance and available credit. Creditors like to see that you have credit available to you, but you don’t use it. It is like a measure of discipline and responsibility. You will be awarded a higher credit and FICO score if you keep your credit balances low.

It is recommended that you only use 30 percent, or less, of your available credit. If you have a car, personal, home, or student loan, you will receive a higher score as the debt is paid down. Some debt monitoring services, such as Credit Karma, have simulators that will show you how your credit score may improve if you pay down specific debt. You can use this type of tool to see which debt will have the most impact on your score by having the balances paid down.

Related article:

How to pay off credit cards fast

Utilizing tested financial practices you can pay your debt with minimal interest payments.

Buying a home

Many find that putting together a downpayment on a home is cost-prohibitive. It is recommended that you put 20 percent down towards a home loan. The average home price in the U.S. is about $330,000. Twenty percent down would be $66,000! The median savings balance in the U.S. is $7,000. You can easily see why many believe they can’t buy a home. 

Okay, but you see many people around you buying homes. How are they doing it? The most common way to buy a home without a large downpayment is by using an FHA loan. An FHA loan only requires 3.5 percent down. So, $11,500 down instead of $66,000 like the example above.  For more great first-time home buyer tips, read our section on buying a home.

Other options for zero-down mortgages:

  • VA loans
  • USDA loans
  • Conventional loans with PMI
  • Freddie Mac Home Possible or Home Ready mortgage
  • Downpayment assistance loans

See if you qualify for a debt consolidation loan

How much mortgage can I afford?

How much mortgage you can comfortably afford is influenced by a few factors, including the downpayment, interest rate, length of the loan, and salary. Overall, your goal is to obtain a mortgage payment that you can easily afford, even if your future income changes. The most well-known “rule of thumb” when it comes to mortgages is the 28/36 percent rule. This finance rule recommends that you not spend more than 28 percent of your gross income on your mortgage and less than 36 percent in overall debt.

For example, if your gross income is $5,000 per month, you should keep your housing costs (mortgage, insurance, and taxes) less than $1,400 per month. And, you should keep your overall debt payments to less than $1,800 per month. Depending on the interest rate, $1,400 per month (30-year mortgage) affords a home cost of roughly $380,000.

While many people nowadays are spending over 30 percent of their income on housing, it is not recommended and often difficult to sustain.

Related article:

What credit score do I need to buy a home

The better your credit score, the lower the interest rate you’ll have to pay on your new home.

Do subscriptions contribute to my credit rating?

Can I build credit by paying my subscriptions? You’d think so, right? While they are not credit accounts, they are monthly payments. Increasingly new services are popping up and saying that they can report your subscription and monthly payments to the credit reporting agencies such as your phone bill, Netflix, Hulu, Spotify, or utilities. 

Some services supply you with a credit card to be used to pay your subscriptions. Then your payments are reported to the credit reporting agencies. Or, other services such as Experian Boost can be set up to report your phone and utility payments for free.

Since you are paying these bills already, it makes sense to get positive reporting for it if the service is low-cost or free. Plus, payments contribute slowly to building credit.

Take this 2 minute quiz:

How credit savvy are you?

What do you really know about your credit?

See if you qualify for a debt consolidation loan

Building credit: 7 FAQs

How do I cancel a credit card?

In most situations, it is not in your best interest to cancel a credit card. However, if you decide to close your account, it is not difficult. Simply follow these steps:

  1. Pay off the balance.
  2. Use any available awards.
  3. Cancel recurring automatic payments.
  4. Login to your account and cancel your card.
  5. Follow up and check your credit report to ensure that the account is reported as closed.
  6. Cut up the card and dispose of it.

What hurts my credit score the most? 

Your payment history counts the most towards your credit score. Missing and late payments impact your credit score. If you have had issues in the past, begin to make all of your payments early or on time. If you can, set up automatic payments, so you will not miss payments in the future.

How long does it take to build credit?

With a bit of discipline and steady payments, you can see your credit score rise within a few months. According to Experian, it typically takes three to six months to see improvements in your credit report. However, if you need to see large improvements, it may take longer.

Can I build credit without having a credit card?

Yes, you can build credit without using a traditional credit card. You can build credit using student, vehicle, or personal loans. It is also possible to build credit by using a credit builder loan, secured credit card, or rent reporting service.

Does how much you owe affect your credit score? 

Yes, the amount you owe contributes to 30 percent of your credit score. It is recommended that you keep your debt utilization under 30 percent. For example, if you have a credit card with an available balance of $10K, you’ll want to keep your debt balance under $3K. 

Is it good to be debt-free? 

While using credit helps you build credit, it is okay to be debt-free. Many funnel funds that they would put towards making debt payments towards savings and investments. In fact, some money-savvy people only use credit for large purchases such as a home. 

How do I build credit as a college student?

You can begin to build your credit in college by using a student credit card or a secured credit card. Many college students also create a credit history by paying off a small vehicle loan. If you are responsible, your parents may help you build credit by adding you to one of their credit cards.

We are here to help you become an informed renter and to save money. Check out these additional resources to help you meet your renting goals.


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