Credit scores impact almost every major financial milestone for American adults, from applying for a credit card to buying a house. But despite how vital they are, it’s not always obvious how to build credit or achieve a high credit score.

Common pitfalls that harm your credit, like a high amount of credit card debt, can be more common than you think: More than one in five (22 percent) U.S. households carry more credit card debt than the amount they have saved for unexpected expenses, according to a Bankrate poll. Trying to improve your credit can seem intimidating, but starting good habits now can set you up for financial wellness in the future.

Key credit statistics

Credit Card
  • 39% of cardholders carry debt from month to month, instead of paying the full balance each month. (Bankrate)
  • 49% of credit cardholders have never switched from their most-used card or haven’t switched in at least five years. (Bankrate)
  • 32% of millennials (age 26-41) have more credit card debt than emergency savings, more than any other age bracket. (Bankrate)
  • 32% of Americans prioritize paying down debt over boosting their savings. (Bankrate)
  • Americans collectively hold a $866 billion balance on credit cards as of the third quarter of 2022, a record-high balance. (TransUnion via Globe Newswire)
  • Credit card balances rose 19% year-over-year since the third quarter of 2021. (TransUnion via Globe Newswire)
  • The average American held $5,474 in credit card debt in the third quarter of 2022, 12.7% up year-over-year. (TransUnion via Globe Newswire)
  • The average new account credit line in the third quarter of 2022 was $5,021. (TransUnion via Globe Newswire)
  • The average FICO score is 716, as of April 2022. (FICO)
  • The silent generation, or those born before 1946, tend to have the highest credit score, with an average of 729. (Intuit)
  • Gen Z, or those born after 1996, tend to have the lowest credit score, with an average of 634. (Intuit)
  • The average home buyer has a credit score of 753. (Intuit)
  • The average new car buyer has a credit score of 713. (Intuit)

Why your credit matters

Having good credit makes you more likely to be approved for loans or other financing. That means that you’ll likely receive loans with a lower interest, which can be vital as interest rates climb during today’s economic uncertainty.

You may know there is a concept of “good” versus “bad” credit, but it may not be clear what that means. A credit score that is considered “good credit” may vary depending on the lender, but generally, a “good” FICO credit score is 670 or higher.

Pros of having a higher credit score (670 or higher) Cons of having a lower credit score (669 or lower)
  • Easier credit approval
  • Lower interest rates
  • Higher credit limits
  • Better loan terms
  • Avoid some deposits
  • Harder credit approval
  • Higher interest rates
  • Higher insurance premiums (in some states)
  • Difficulty being approved for loans
  • Higher security deposits

How are credit scores calculated?

What goes into a credit score? More than you might realize. The FICO credit scoring model uses five factors to calculate your credit score:

Payment history 35 percent of your credit score is based on your payment record. Pay your bills on time every month to avoid lowering your newly established credit score.
Credit utilization 30 percent of your credit score is based on how much of your available credit you’re currently using — and less credit utilization is better. If you rack up debt or carry high balances, your credit score may suffer.
Length of credit history 15 percent of your credit score is based on credit history length, including the age of your oldest credit account, the age of your newest account and the average age of all your accounts. This is why it’s a good idea to keep old credit cards open, even when you’re no longer using them regularly.
Credit mix 10 percent of your credit score is based on the types of credit accounts under your name. Having revolving accounts, such as credit cards, and installment accounts, such as car loans, can give your credit score a bump. But you can still build and maintain a good credit score even if you only have credit cards.
Recent credit inquiries 10 percent of your credit score comes from new credit, including the number of credit inquiries on your account. Each hard credit pull temporarily lowers your credit score slightly, so try to avoid applying for a lot of new credit over a short time.

How to improve your credit

Opening a credit card and paying the balance every month can reliably boost credit, but it’s not the only way. These are some ways to build credit, both with and without an actual credit card.

5 ways to build credit with a credit card

A good credit score allows you to open a credit card with the best deals, but the reverse is true, too — using your credit cards wisely will improve your credit. This is how:

1. Sign up for the right type of credit card

When you’re ready to start building credit with a credit card, make sure you apply for the right type of card. If you’re trying to build credit as a college student, consider one of the top credit cards for students. If you have a car, fuel expenses are already a part of your spending — and gas credit cards help you use those purchases as a foundation for building credit.

You could even build your credit score with a store credit card. Retail credit cards often come with high interest rates, but they’re available to people with less-than-perfect credit. That makes store cards a good starting point for people who want to improve their credit history.

If your credit score is very low or your credit history is limited, you might want to consider applying for a secured credit card. Secured cards require a deposit to obtain a line of credit. For example, a $500 credit limit typically requires a $500 deposit. Having to pay for a line of credit might seem like a hassle, but it’s an easy way to obtain credit in your own name. Once you build up a history of responsible use, most secured cards will return your deposit — and the best-secured cards will typically increase your credit limit, giving your credit score another boost.

2. Become an authorized user

Becoming an authorized user on someone else’s credit account is a fast way to add information to your credit history. As an authorized user, you’ll be able to piggyback on someone else’s credit — which can be both a benefit and a challenge.

If the person who has authorized you on their account uses credit responsibly, their good credit habits, such as on-time payments, can help you boost your own credit history and score. However, if they begin treating their credit accounts irresponsibly, you might want to remove yourself as an authorized user as any poor credit habits can affect your record, too.

Before you become an authorized user on a credit card, check to see whether the lender reports authorized user data to the three major credit bureaus (Equifax, Experian and TransUnion). Not all lenders report authorized users to the credit bureaus, so make sure you’re becoming an authorized user on an account that can actually help your credit, and make sure the account that you’re being added to is recognized by major credit bureaus.

3. Set up automatic credit card payments

One of the best ways to ensure you always pay your credit card bills on time is to sign up for automatic credit card payments. You can set up an automatic minimum payment, pay the full statement balance or choose a fixed amount to put toward your credit card(s) every month. You’ll need to make sure there’s enough money in your bank account to cover your automatic payments, of course. But if you can get autopay on your credit card bills, you’ll reap the benefit of a positive credit payment history without having to manually schedule payments each month.

4. Open a second credit card

Once you’ve built up a positive credit history with your first credit card, it may be time to apply for a second credit card. Having multiple credit cards under your name increases the amount of credit available to you — and if you can avoid running up high balances on your credit cards, you could lower your credit utilization ratio (which represents your current debt as a percentage of your available credit) and improve your credit score. Your credit utilization ratio is an important credit scoring factor, and experts suggest keeping your balances under 30 percent of your credit limits to help your scores.

Plus, having more than one credit card gives you the opportunity to earn different credit card rewards. You might want a travel credit card and a cash back credit card, for example, or a card that rewards groceries and a card that rewards dining out.

5. Request a credit limit increase

One of the easiest ways to increase your credit score is by increasing your credit limit if it’s an option as you build credit. If you request a credit limit increase on your existing credit cards, you might be able to get a slightly higher line of credit on each card. That extra credit may help your credit score grow if you don’t turn your new credit into debt. Before requesting a credit limit increase, check with your credit card company to understand its requirements and if you should consider this route to help build your credit.

5 ways to build credit without a credit card

Getting a credit card and paying it off every month is a reliable way to build credit, but it’s not the only way. Because interest rates are very high due to current U.S. economic headwinds, be careful looking for new lines of credit that may include high interest rates. Shop for the best interest rates on loans, and try to avoid lines of credit if you’re unsure you will be able to pay it monthly.

If you’re having difficulty getting approved for a credit card or you’re looking for alternative methods, consider these ways to build credit:

1. Make your rent and utility payments count

If you don’t have a credit card of your own yet — or if you want to build your credit without credit cards — it’s time to leverage the power of your other monthly bills. If you rent, ask your property management company if it reports your payments to Experian RentBureau. If it doesn’t, you can sign up for a rent payment service that works in partnership with RentBureau and have your rental payment history reported. There are many ways to report your rent to the credit bureaus, so try to take advantage of at least one of them.

You might also want to consider signing up for Experian Boost, a service that may help you boost your credit score by tracking your phone and utility payments. If you pay those bills on time every month, you could see an instant improvement in your FICO score.

2. Take out a personal loan

If you’ve been using credit cards and making responsible on-time payments, you may have enough credit history to qualify for a small personal loan. Taking out a personal loan can diversify the types of credit on your credit report, and you can use your loan to prove you can consistently make payments on time.

3. Take out a car loan

Taking out a car loan will be a hard inquiry, which temporarily lowers your credit score slightly. But paying your car loan each month shows that you have a “current” or “paid as agreed” payment history.

Additionally, a car loan is usually considered to be an installment account. In other words, it’s assumed you will pay the same amount each month for a certain period.

4. Get a credit builder loan

A local bank or credit union, or an online bank, may offer a credit builder loan that allows you to take out a small loan that will be paid off between six months to two years.

Those payments will be reported to credit bureaus, and if you pay on time, you can expect to see your credit increase. You get access to the amount you took out, too.

5. Make payments on student loans

Student loan forgiveness is currently blocked by the Supreme Court, and it’s unclear if borrowers might have $10,000, or $20,000 if they are Pell Grant recipients, forgiven. Student loan payments have been paused through the length of the COVID-19 pandemic and aren’t expected to begin again until August 2023.

Still, if you have over $20,000 in student loan debt or you make too much to qualify for forgiveness, you can chip away at that remaining debt and build your credit by making payments now. Student loan payments are not currently accruing interest, so if you’re interested, now can be a great time to pay the debt down and build your credit in the process.

Learn more:

    • This study on emergency savings versus credit card debt was conducted for Bankrate via telephone by SSRS on its Forsta Plus (formerly known as Confirmit) platform. The SSRS Omnibus is a national, weekly, dual-frame bilingual telephone survey. Interviews were conducted from January 18 – January 24, 2022 among a sample of 1,002 respondents in English (963) and Spanish (39). Telephone interviews were conducted by landline (217) and cell phone (785, including 602 without a landline phone). The margin of error for total respondents is +/-3.49% at the 95% confidence level. All SSRS Omnibus data are weighted to represent the target population. commissioned YouGov Plc to conduct the survey on credit card debt. All figures, unless otherwise stated, are from YouGov Plc. Total sample size was 2,764 U.S. adults, including 2,049 credit cardholders and 804 who carry credit card debt from month to month. Fieldwork was undertaken December 1-3, 2021. The survey was carried out online and meets rigorous quality standards. It employed a non-probability-based sample using both quotas upfront during collection and then a weighting scheme on the back end designed and proven to provide nationally representative results.