5 Ways to Build Your Credit This Year

Why is having good credit important? What even is a credit score? If you are asking yourself these questions, I’ve got you covered!

Renowned financial advisor Dave Ramsey famously says he doesn’t need a credit score because he pays for everything with cash. In a perfect utopian world where everyone has $200 million in assets, that’s a great plan. But the reality is most ordinary people facing skyrocketing costs and living in our modern economy need a good credit score–for more reasons than you’d think.

What is a Credit Score?

But first, what is a credit score? This number ranging from 350 to 800 represents your creditworthiness, or how likely you are to repay borrowed money. It helps lenders like banks, credit card companies, and mortgage providers predict if you will pay them back—on time and in full. 

You can start building your credit at the age of 18, but for those of you under 18, you’re getting ahead of the game by reading below! This will apply to you more quickly than you realize.  

Why is Good Credit Important?

This score can impact almost every part of your financial life, from borrowing to employment to renting a house. Landlords, insurance, utility, and even cell phone providers look at this number to decide whether they want to do business with you and how favorable the terms of their contract will be. 

It also directly influences your interest rates with loans and credit cards. A higher credit score means you’ll get a lower rate, which means you’ll pay less overall! Who doesn’t want that?!

So without further ado, let’s go over 5 ways to build your credit this year.

#1 - Pay Your Credit Bills on Time!

Payment history accounts for 35% of your score and is the BIGGEST factor in determining your credit score. This means paying all fixed loan and credit card payments each month (at least the minimum payment) on time or early. 

• One late payment, even by a day, can hurt your score for 7 years, so set up autopay or a bill-paying routine to remind you.  
• Missed payments? Get current and stay current!

#2 - Keep Low Debt Balances & Pay in Full!

The amount owed accounts for 30% of your score and is the second biggest factor in determining your credit score. Maintaining a monthly balance on your credit card HURTS you–not helps you–and will cost you with high interest, so prioritize paying those in full!

• Know your credit limit and aim to use up to 30% of that every month (i.e. don’t get near maxing out your credit card).
• Spread your spending over 2-4 cards instead of keeping it all on one card.

#3 - Leave Accounts Open & Use Them

Your credit history accounts for 15% of your score, so instead of closing old accounts, make small charges on your old credit cards periodically. 

• Under 18 with no credit history? Start with a secured credit card, a retail store credit card, or become an authorized user on a family’s account—but use the card responsibly!

#4 - Slowly Build Your Credit Portfolio

New credit accounts for 10% of your credit score, so having a lot of credit cards isn’t as influential a factor as you’d think. Contrary to popular belief, applying to multiple credit cards at once doesn’t help your credit either- it can hurt it. 

• Don’t just get a new credit card to boost your score, focus on responsibly managing the cards you do have, and slowly build your portfolio (2-4 credit cards) over time. 

#5 - Diversify Your Credit Mix

Managing different types of credit accounts, from credit cards to installment loans like auto, home, or student loans, accounts for the final 10% of your credit score. 

• This is a smaller factor, so don’t go taking out a loan if you don’t ABSOLUTELY need one–you’ll be in better shape without more debt.

Bottom Line? Use credit responsibly and make prompt payments, in full. It’s that simple!

That said, having a good credit score is not a reflection of your overall financial stability; it’s only a small part of the financial equation. In adulthood, it’s important to be financially literate - that means making a livable wage and learning how to budget, save, invest, borrow, and protect your assets.   

That’s why uThrive Academy exists. These tips are part of a comprehensive online course that teaches career readiness, financial literacy, and practical life skills for the modern age. In just 6 modules, learn how to get on the right career path, stick to it, and build wealth for years to come. Check it out below!