Start working on building a strong credit history now, so that it’s there when you need it in the future.

  • Good credit may be essential for loans, rentals, utilities, and even some jobs.
  • Building credit starts with responsible use of accounts like credit cards.
  • On-time payments, low credit utilization, and monitoring reports are important habits to maintain.
  • Protecting against fraud and managing applications responsibly may strengthen long-term credit health.

Many people may expect a credit check when applying for a loan, but there are many other situations where good credit counts. You're likely to face a credit check when trying to rent an apartment, set up utilities, or sign up for a new cell phone plan. Some auto insurance companies check credit, and for certain jobs, it might even be a part of the hiring process.

Even if you're not planning on any of these things right away, building good credit takes time, so it's important to start early. Learning how to build your credit begins with knowing how credit bureaus work, what's included in a credit report, and the key steps to building a strong track record.

Understanding Your Credit Report

A credit report is a record of how you’ve managed debt over time. It typically includes:

  • A list of businesses that have extended you credit or loans
  • The total amount of each loan, and the limit on each credit card
  • How often you’ve made on-time payments, and the amount paid each time
  • Any missed or late payments, and bad (uncollectible) debt

These reports are created and maintained by credit bureaus, which are private companies that collect, update, and store information about your borrowing history.

Credit scoring companies, such as FICO® or VantageScore®, then use this information to calculate your credit score. Depending on the situation, lenders, landlords, or other parties may review the full report, score, or both to determine how much debt you can afford to take on, and whether you're likely to make payments on time. A lower score generally indicates a higher risk to the lender, which may translate into higher interest rates for borrowers.

How To Start Building Credit

The tips below are not complicated, but they can make a real difference in building a strong financial foundation. Each action you take helps lenders and other parties get a better picture of how responsibly you use credit, so being diligent from the start may help you well into the future.

  1. Open Your First Credit Account: For many, building a credit history begins with applying for a credit card. Once you're approved, use it every so often for small purchases and pay it off in full before the due date. If you're having trouble getting approved due to a lack of credit history, consider a secured credit card. This typically requires making a deposit, which works as a security deposit and is often your credit limit.

    Another option is to ask a parent or close family member to add you as an authorized user on their credit card. Authorized users are allowed to make charges using the card, but are not financially responsible for payments. As long as that account is managed well, it may help you begin establishing a positive credit record.

  2. Make Every Payment On Time: Making payments on time has the biggest influence on your credit score.[1] Even a single late payment may stay on your report for years. Prevent this by setting up automatic payments or calendar reminders to make a payment before each due date. Paying at least the minimum payment may keep your credit profile on track, but paying in full avoids interest charges and may help you manage debt more effectively.

  3. Keep Your Credit Utilization Low: Credit utilization is the amount of available credit you’re using at a given time.[1] For example, carrying a $500 balance on a card with a $1,000 limit gives you a 50% utilization. Lenders typically view low utilization as a sign of responsible money management. Generally, utilization of 30% or lower is often preferred, but staying lower may work in your favor.

  4. Regularly Check Your Credit Report: Credit reports aren't perfect, and an unnoticed error could negatively affect your credit score. By law, you're entitled to free annual online credit reports from each of the major credit bureaus on AnnualCreditReport.com. At least once a year, request your reports and check them carefully, looking for errors such as an incorrect balance or a payment incorrectly marked late. If an error shows up, report it to the credit bureau right away.

  5. Keep Your Eye Out For Fraud: Fraudulent accounts and unauthorized charges may damage your credit if they're not caught early. Set up alerts with your bank or credit card company to spot unusual activity right away. If you're not planning to apply for new credit, it may help to request a credit freeze.

    This limits access to your credit report, making it harder for an identity thief to open an account using your name or Social Security number. You can request a credit freeze by contacting each of the three major credit bureaus (Equifax, Experian, and TransUnion).

  6. Limit Applications and Keep Old Accounts Open: Applying for credit typically results in having a hard inquiry posted to your credit report. This means that the lender has pulled the full report from at least one of the credit bureaus for review before approving the application. A single hard inquiry usually has a small, temporary impact on your credit score. However, multiple inquiries in a short time period may lower your score. To avoid this, apply for credit only when necessary and avoid opening multiple accounts at once.

    Credit scores also factor in the length of your credit history.[1] Closing a long-standing account may lower your score by shortening the total average age of accounts. It may also reduce the total amount of credit available, increasing your credit utilization ratio.

  7. Create a Budget and Spend Responsibly: Lenders want to see that you're not relying too heavily on borrowed money, and overspending could lead to missed payments and high utilization. Creating a budget and spending responsibly may help you stay on top of monthly bills and avoid carrying balances too high to pay back.

Good Credit Starts With Good Habits

Building good credit may be a long process, but with consistent habits and smart financial management, you may start to turn small steps into long-term financial stability.

To learn more, visit pnc.com/myfinanceacademy.