9 No-Nonsense Ways to Build the Best Credit

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9 No-Nonsense Ways to Build the Best CreditWhether you’re looking for every trick in the book to fix bad credit or the bare bones necessary to build the best credit possible, this is the list for you. Because while there are plenty of tips here that might read like tricks, they’re really just practical approaches. You’re probably doing more right than you realize and anything you need to do better can, with practice, become another good habit.

1) Pay all of your bills on time, every time

Your payment history is the biggest part of what determines your credit score. It represents 35 percent of your FICO Score and is “Extremely influential” on your VantageScore. Pay on time, and your credit score benefits. Pay late, and it takes a hit. This applies to pretty much any type of bill, but for different reasons.

Credit lines

The longer your history of on-time payments on your lines of credit, the better your credit score will be. On the other hand, it only takes one late payment to knock as many as 100 points off your credit score. So, be sure to make timely payments on all your credit lines:

  • Credit cards
  • Retail cards
  • Gas cards
  • Auto loans
  • Student loans
  • Personal loans
  • Personal lines of credit
  • Mortgages
  • Home equity loans
  • Home equity lines of credit

Other bills

Many accounts you have won’t get reported to the credit bureaus until you’re so late that the debt has been turned over to a collection agency, a sure way to drag down your credit score. So, to build the best credit, be sure to make timely payments on:

  • Cell phone bills
  • Landline bills
  • Cable bills
  • Utility bills
  • Medical bills

That said, in some situations, on-time payments on bills like these can actually help your credit score if you have positive payment history. For example, if you have no credit history – or it’s been years since you’ve used it – you may be unscorable under the traditional FICO Score. But FICO XD can generate a temporary score for you based on cell phone, landline, and cable payment history (as well as public records and property data).

Worried about falling behind? Keep the creditor or company in the loop. The better you communicate, the better your chances for working out a payment plan you can afford.

2) Be mindful of your credit mix

Credit mix refers to the diversity of your credit accounts, which fall into three main categories:

Revolving lines of credit

  • Credit cards
  • Retail cards
  • Gas cards
  • Personal lines of credit
  • Home equity lines of credit

Non-revolving lines of credit

  • Auto loans
  • Student loans
  • Personal loans
  • Mortgages
  • Home equity loans

Open accounts

  • Cell phone accounts
  • Landline accounts
  • Cable accounts
  • Utility accounts

To build the best credit, you ideally want to have positive payment histories in all three of these credit categories. But it’s never worth mixing things up so much that you get in over your head. Certainly, you should pay all of your open accounts on time and use credit cards (that you pay off every month). But think twice about taking out a loan just to build credit.

If you need to finance a new car, great, but don’t buy one just to help your credit score. On the other hand, you might want to check with your bank or credit union about small credit-building loans.

3) Shop around for the best credit terms

This applies to any type of credit that you are applying for, from credit cards, to auto loans, to mortgages. Because the better deal you find, the less you’ll pay for it. This is important to your credit not because your interest rate affects your credit score. Shopping around helps because the less interest you pay, the sooner you’ll pay off the debt and, in turn, the better your credit will get.

To shop around for the best terms, check out credit comparison sites like Bankrate, Nerdwallet, and Credit Karma.

4) Apply for credit offers compatible with your credit score

When you shop around on credit comparison sites, pay attention to the kind of credit needed to qualify. Otherwise, you could end up in of one of two situations:

  • You apply for credit that requires better credit than you have. That means you’ll be turned down, making the credit application good for nothing. Not only did you not get the credit, but it left a hard inquiry on your credit report.
  • You apply for credit intended for consumers with worse credit than you have. Getting the credit isn’t the problem. The problem is you’ll likely be charged higher fees than if you’d applied for credit better suited to your credit score.

Note sure what kind of credit you have? Get your score through free credit monitoring sites.

We recommend Credit Karma (for TransUnion and Equifax VantageScores), Credit.com for your Experian VantageScore, and Discover Credit Scorecard for your FICO Score. You will probably see fluctuations from one score to the next, but they’ll likely be close enough to give you a good idea of how good or bad your credit is.

When Multiple Hard Inquiries Count as One5) Minimize credit applications

Every time you apply for credit, it counts as a hard inquiry on your credit report. It doesn’t take much off your credit score (fewer than 5 points), but numerous hard inquiries are red flags to potential creditors. Plus, hard inquiries affect your credit up to 12 months and stay on your credit reports up to 2 years. So, minimize your credit applications:

  • For credit cards, make sure you shop around first and apply for one that is compatible with your credit score, helping to ensure approval your first time (see number 5 below); when approved wait at least a year before applying for another card
  • For auto loans, student loans, and mortgages, you’ll likely want to submit multiple applications. But if you do so within a certain window of time, it will only count as one hard inquiry:
    • FICO counts it as one hard inquiry for auto loan, student loan, and mortgage credit checks made within 14 to 45 days of each other
    • VantageScore counts it as one hard inquiry for auto loan, mortgage, and utility credit checks made within a rolling 2-week window

By the way, when you check your own credit, it counts as a soft inquiry, which does not affect your credit score. The same is true of the access you give to credit monitoring companies. Yes, they check your credit to provide report and score information to you, but these are soft inquiries, not hard.

6) Use no more than 10 to 30 percent of available revolving credit at a time

This is called your credit utilization ratio, one of the factors that contributes to your credit score. Most experts say you should keep your ratio below 10 to 30 percent at a time. Why? Because the more revolving credit you use (e.g., credit cards, home equity lines of credit, personal lines of credit), the riskier it makes you, which gets reflected in your credit score.

For example, if you have a $1,000 limit on a credit card, you do not want to use more than $100 to $300 at any one time. So, if your credit card balance is $50, you should only charge another $50 to $250 until you pay it off. Unless, of course, you pay a portion of the balance, in which case it would simply adjust your ratio. If your credit card balance is $50 and you make a payment of $25, you then can charge another $75 to $275.

This same rule should apply to all of your revolving credit lines, meaning that your collective use will also be no more than 10 to 30 percent.

Note, credit utilization ratio does not apply to non-revolving credit accounts (e.g., auto loans, mortgages, student loans, etc.).

7) Pay off your credit card balances every month

You may have heard that carrying a balance helps your credit. In fact, the smartest way to build good credit is to return your balance to zero every month. What you don’t want to do, though, is make a charge and pay it off right away. Wait until after you get the bill and then pay the balance in full. This way your credit card issuers will have usage to report to the credit bureaus. Again, though, you want to keep this usage at no more than 10 to 30 percent of your available credit limit.

To be clear, you can pay your bill before it’s due, just wait until after you’ve actually received the bill (i.e., after the closely date).

Note, paying off your balance every month will not only help build your credit, but will save you unnecessary interest charges.

Can’t possibly return your credit card balance to zero this month or anytime soon? Many people in your situation have found their way back to zero through the debt snowball and avalanche methods.

8) Think twice about canceling credit cards

There are a few good reasons you might consider canceling a credit card:

  • You never use it
  • You just paid it off and have no intention of using it again
  • You just paid it off and are afraid you are going to use it again

Whatever the case, think twice about closing it (and how you should be using it in the future).

The length of your credit history counts as 15 percent of your FICO Score. And the age and type of your credit history count as “Highly influential” on your VantageScore. In other words, the older the credit card, the more canceling it will likely hurt your credit score. Not anytime soon, as the account will still show up on your credit reports for up to 10 years. But after the 10 years is up, it will fall off and the age of that card will go with it.

Plus, this card you’re thinking about canceling is contributing to your overall credit limit and credit utilization ratio.

So, if you never use a credit card – or have one you just paid off and don’t want to use again – keep it anyway. Of course, if you go too long without using a credit card, the issuer might close it out anyway. So, in fact, it’s a good idea to use it now and then.

On the other hand, if it’s a credit card you’ve just paid off and you know yourself well enough to suspect you’re going to max it out again, canceling just might be your best bet. Yes, losing it might hurt your credit score, but it’s worth losing a few points to avoid going deeper into debt.

Breaking Down Credit Card Basics: What You Don’t Know May Surprise You

9) Monitor your credit

Identity theft

Even if you do everything right, all it takes is one identity thief to tank your credit score. That’s why it’s so important to keep a close eye on your credit reports . The sooner you notice someone opened a credit account in your name, the sooner you can address it and minimize the damage.

UPDATE: In the wake of the Equifax hack, it is recommended that you place a credit freeze on all of your credit reports — the best way to keep fraudsters from opening credit accounts in your name. Get the facts about credit freezes.


Again, even if you do everything right, that won’t prevent data furnishers or credit bureaus from making mistakes – costly ones that could be dragging down your credit score. Errors on credit reports are common and the sooner you catch them, the sooner you can dispute them.

Old debts

Whether you’ve forgotten about them or gave up on paying old debts back long ago, their presence on your credit reports is hurting your credit score. Look for old debts on your credit reports and use DIY debt settlement techniques to get them taken care of once and for all. (Just be sure to check your state’s statute of limitations first.)

There are all sorts of ways to approach credit monitoring – for free and for a fee. Check out 22 ways to monitor your credit and our comprehensive comparison of credit report offers.

Keep It Simple

Even this streamlined list to building the best credit might feel overwhelming. If so, focus on the most important concepts:

  • Pay on time
  • Don’t apply for too much credit
  • Don’t use too much credit
  • Pay off outstanding balances
  • Keep an eye on your credit reports

Do all of these things, and you’ll keep your credit in good shape.

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