The steps you take to improve your credit score will depend on your unique credit profile. In general, its important to understand the factors that influence your score, including your payment history, amounts owed, length of credit history, credit mix and new credit.
There are several ways you can improve your credit score, including making on-time payments, paying down balances, avoiding unnecessary debt and more. But depending on your unique situation, it can be difficult to know where to start.
Whether youre building credit from scratch or rebuilding after some credit missteps, understanding the factors that go into your credit score can help you determine which steps to take. So, here are seven things you can do to raise your credit score, how they’ll work, and how long it might take to see results.
Building or rebuilding credit can seem like a daunting task. Your credit score plays a big role in your ability to get approved for loans and credit cards. So naturally, you want to do everything you can to improve it.
While there are many factors that make up your credit score, your payment history is one of the most important ones. After all, lenders want to see that you can responsibly make payments on time.
But not all payments help build your credit Traditional credit accounts like credit cards, auto loans, and mortgages generally get reported to the major credit bureaus and can help improve your scores. Other recurring payments like cell phone bills and utilities often don’t get reported
So what payments actually help build your credit? Keep reading to find out,
Traditional Credit Accounts
The most reliable way to build credit is to open traditional credit accounts and make on-time payments. These include:
Credit cards – Credit cards allow you to borrow money up to a certain limit and pay it back each month. When used responsibly, they can help establish and improve your credit. Using less than 30% of your available credit is ideal.
Auto loans: These are installment loans that let you pay for a car over a number of years. Making regular monthly payments shows lenders that you can handle this kind of debt.
Mortgages – As secured loans backed by real estate, mortgages represent a major credit commitment. Handling this long-term debt responsibly demonstrates your creditworthiness.
Personal loans – With personal loans, you borrow a lump sum and repay it in fixed monthly installments. They can help build your credit through on-time payments.
Student loans – Most student loans enter repayment after graduation. Managing other debts along with student loan payments shows good credit management.
The key is to always make at least the minimum payment on time each month. Delinquent payments can quickly drag down your credit.
Alternative Data Payments
Not all monthly bills show up on your credit reports, even if you pay them on time. But some third-party companies can report these “alternative data” payments to help build your credit:
Rent payments – On-time rent payments can demonstrate financial responsibility. Companies like Rental Kharma and Credit Stacker report rent to credit bureaus.
Utility payments – Gas, electric, water, cable, and cell phone bills help establish timely payment habits. Reporting services like Paymentcloud and RentTrack submit this data to the credit bureaus.
Insurance premiums—Only paying your insurance bills on time shows that you can handle making regular payments. Insurance reporting services like Onma and Armor1 report payment data.
Streaming services – On-time subscriptions like Netflix, Hulu, Spotify, and gym memberships exhibit financial diligence. Companies like Bixlee and Self work with lenders to report these payments.
The catch is you need to sign up for these third-party services for payments to get reported. And you often have to pay a monthly fee ranging anywhere from $6.99 to $24.99.
How Payments Help Your Credit Score
Now that you know which accounts can help you build credit, let’s look at how they really do that.
Your payment history makes up a significant portion of your FICO credit score—the scoring model used by most lenders. Timely payments show lenders you’re a dependable borrower able to manage debt responsibly.
Here’s the breakdown of how your payment history affects your FICO score:
- Payment history: 35%
- Amounts owed: 30%
- Length of credit history: 15%
- New credit: 10%
- Credit mix: 10%
Payment history holds the most weight. Even one 30-day late payment can drop your score by over 100 points. Multiple late payments can be even more damaging.
Delinquent accounts like collections and bankruptcies also hurt your scores. Bringing past-due accounts current and paying collections can help rebuild your credit over time.
Tips for Managing Payments
Managing payments responsibly takes diligence and organization. Here are some tips to ensure accounts get paid on time every month:
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Sign up for autopay – Setting up automatic payments through your credit account and billing websites guarantees on-time payments.
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Use payment reminders – Calendar alerts and mobile app notifications remind you when bills are due so you pay on time.
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Pay right after billing – Paying your credit card bill immediately after your statement cuts ensures no late fees.
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Pay multiple times – Making bi-weekly or weekly credit card payments keeps your balance low compared to your limit.
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Review statements – Verify billing statements regularly so you catch any errors before the due date.
Staying on top of payments takes work, but it pays off through improved credit scores and reduced account fees over time.
The Bottom Line
Not all monthly bills help build your credit, but many recurring payments can support your credit-building efforts. Traditional credit accounts like credit cards, auto loans, and mortgages reported to credit bureaus provide the biggest boost when paid on time. Rent, utilities, phone bills, and other alternative data payments can also help strengthen your credit through third-party reporting services.
Focus on making at least the minimum payment every month before the due date. Sign up for reporting services if you want utilities and other bills to count. Also leverage payment reminders and autopay to avoid ever missing a payment.
Sticking to these credit-building tips takes diligence, but it’s worthwhile for the credit score improvement you’ll begin seeing in just a few months. So stay organized and be persistent, and you’ll be well on your way to establishing strong payment habits and great credit.
Diversify the Types of Credit You Have
Credit impact: Credit mix accounts for 10% of your FICO® Score and involves managing different types of credit. For example, someone with two credit cards, an auto loan and a mortgage loan will have a stronger credit mix than someone with just one credit card.
Note that your credit mix generally wont be a major factor in determining your eligibility for a loan or credit card, but it can help take a good credit score to the next level.
Actions you can take: Your credit mix will likely improve naturally over time as you apply for different types of credit to meet your financial needs. If youre just starting to establish your credit history, it can help to apply for a starter credit card and a credit-builder loan.
Once you get going, however, try to avoid taking on more debt than is necessary just for the sake of building credit.
How long it takes: Because your credit mix has a smaller influence on your credit score, theres no need to rush. Diversifying your credit mix can take several years as you apply for new credit accounts when you need them.
Limit New Credit Applications
Credit impact: Virtually every time you apply for credit, the lender will run a hard inquiry on one or more of your credit reports. These inquiries and how long its been since youve opened a new account make up 10% of your FICO® Score.
Each hard inquiry will typically knock fewer than five points off your credit score, but multiple inquiries in a short period of time, especially when applying for credit cards, could have a compounding negative effect.
Actions you can take: Only apply for credit when you need it to avoid too many hard inquiries. Before you apply for a loan or credit card, check to see if the lender offers prequalification, which can give you an idea of your eligibility and potential terms with a soft credit check, which wont impact your credit score.
If youre shopping around for a mortgage loan, auto loan or student loan, newer FICO® Score versions will combine multiple inquiries into one for scoring purposes as long as you complete the rate-shopping process within a short timeframe, often between 14 and 45 days depending on the version used.
How long it takes: Hard inquiries remain on your credit reports for two years, but they only impact your FICO® Score for up to one year.
How to Build Credit with Credit Cards
FAQ
Which payment method helps build good credit?
Even with limited or poor credit, there are good credit card options available to help build your credit. Depending on your financial needs, your best bet will likely be a secured card, student card or store card. If you have a poor credit score or no credit history at all, a secured credit card is a solid choice.
What bills improve your credit score?
Paying certain bills on time can positively impact your credit score, particularly those reported to credit bureaus. These include utility bills, rent payments, cell phone bills, and credit card payments.
How to get a 700 credit score in 30 days?
Achieving a 700 credit score in 30 days is a very ambitious goal, and may not be realistic for everyone. However, focusing on key areas can lead to significant improvements. The primary focus should be on making all payments on time, reducing credit utilization, and disputing any errors on your credit report.
What payments contribute to credit score?
Your payment history is worth 35% of your FICO Score, making it the most important factor that affects your credit score. What kinds of payments show up on my credit report? Loan payments (like mortgages, car loans, and personal loans) and credit card payments show up most often.