This article originally appeared in the Money print issue, in stands March 2025. It has not been updated and some information may be out of date.
The average person will need to show creditworthiness at some point in their life. That could be for renting an apartment, buying a home or car or a creating business start-up venture. To prepare, here’s a guide on how to build credit.
Understanding Credit
Credit is an individual’s or a business’ history with lenders. Building credit is a slow, steady process and does not happen overnight.
“You have to start early, meaning today,” Jason Floyd, University of Utah Financial Skills for Life instructor, said.
Floyd discussed reasons lenders look at credit. For example, a credit report will detail whether a potential borrower has a history of paying back their loans on time. This history will generate a FICO score on a scale of 300-850. If a borrower does not have any credit history, the lender cannot determine whether that person would be a good candidate for a loan.
“A common misconception about building credit is that you need to carry a balance on your credit card each month,” Floyd said. “You should always strive to pay off your entire credit card balance every month. If you do that, you will not pay any interest on purchases you made with your credit card that month, but you will still get the benefits of the card, such as rewards points or cash back and you will still be building payment history.”
Don’t Fall Into the Debt Trap
According to the Federal Reserve, near the end of 2024 the total U.S. non-housing debt balance was $5.04 trillion. This is the highest household debt has ever been in the U.S. and has been growing since 2013. Delinquency rates are also increasing, meaning more borrowers are unable to make their payments each quarter.
“There is an epidemic of using too much credit in today’s society,” Floyd said. “Pay off your credit cards on a monthly basis, except in rare circumstances. If you don’t have the money to purchase something right now, don’t buy it.”
Floyd recommended using the financial tools available to consumers on the Consumer Financial Protection Bureau website, which provides resources for education on home buying, tax filing, obtaining an auto loan, paying for college and planning for disasters and emergencies.
“You should strive to build an emergency fund of $500 to $1,000,” Floyd said. ”If you view your credit card as an emergency fund, it will be expensive if you need to use it in the event of an emergency when you are paying interest on the balance.”
The Financial Wellness Center
The U offers credit counseling services through the Financial Wellness Center for assistance building or repairing credit. These services are available to current students, their families or support systems and U alumni who have graduated within the last three years. Appointments can be booked online.
These meetings will be with a peer mentor, such as Lucy Christensen, sophomore international studies major, or an Accredited Financial Counselor (AFC). They will assist individuals with 1:1 credit counseling, a personal credit report review and provide tips to improve credit.
Some of their recommendations include opening a credit card, paying monthly bills on time, setting up automatic payments and starting one’s credit journey as young as possible.
“If you didn’t start at 18, start today,” Christensen said. The Financial Wellness Center can also help with creating plans to pay off debt and budgeting.
Beginning the Journey to Good Credit
Typically, interest rates on credit cards vary monthly based on the Federal Prime Rate. Interest is based on an annual percentage rate but paid monthly, so, if a credit card has a balance of $10,000 and the interest rate is 25%, the payment on that balance is $2,500 per year, or approximately $208.33 per month.
If a credit card is handled well for 6-12 months, many lenders will automatically increase the spending limit on that card. This increases purchasing power on credit and can potentially help with qualifying for larger loans. If borrowers can handle this limit responsibly without spending beyond their means, having a higher limit is a positive credit factor.
“It comes down to trusting yourself.” Christensen said. “If you know you’ve gone into credit card debt in the past or you know you’ve overspent, [having a higher credit limit] might not be the best option until you know you can trust yourself to handle it responsibly.”
After handling one credit card well for 6-12 months, students can also start looking at diversifying their credit portfolio with an additional credit card or a personal loan. So long as payments are being made on time and cards are being used responsibly, this will begin the slow and steady path to building positive payment history and a good credit score.
