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Expert Q&A: How to Build Your Credit Score

Erica Sandberg

August 1, 2011

QDear Erica,
I am a 20-year-old student with one credit card. I use it responsibly and always pay my balance in full. I am simply using the card to build up a credit history — not because I do not have the money to pay for what I need. I really want to build up my credit score in the next few years. What is the best way to accomplish this? Would it be a good idea to get some other credit cards and just cut them up and not use them, but have them open for a few years to help my credit score? I am looking for the best way to build up my credit score in the next five years, and I would rather just have one credit card I use — unless it would help to use more cards. — Dexter

ADear Dexter,
Gosh, I love easy questions! Sure, I like to sink my teeth into a complicated situation now and again, but sometimes it’s nice to know that the answer I’ll give will be simple and even fun to adopt. Such is the case with you.

Why? Well …

You already have a credit card. No battles with the bank to get one, no one wondering if you’ll qualify for an unsecured card on your own or will need your parent’s assistance. No scrummaging around for cash to put down as a deposit for a secured card. The first part of your problem is already solved. Ask Erica

You’re using the card responsibly! Hey now, that’s pretty awesome. I’m not kidding. Many first-time cardholders go a little bonkers in the beginning. They charge stuff they can’t afford, allow the balance to blow up or forget to send payments. Not you, Dexter.

Apparently, you’re keeping the debt to nil and are paying on time. What does this mean? That you’re already creating a good credit score. You’re doing it right now. This is because 35 percent of a FICO score concerns your payment history, and 30 percent factors in the amount of money that you owe. Since those two categories are squeaky clean, you’re doing great. The next most significant factor is length of credit history at 15 percent, and as you’re only 20, you’re starting about as young as you can.

Let’s see, what else … Oh yes, whether or not you should get more credit. Yes, if your primary motivation is to hike up that FICO (the mid-700s is a good goal). The types of credit in use is 10 percent of the score and takes into consideration the various credit instruments that you prove you can handle well.

One more credit card is fine, but a charge card might be a better addition to your wallet. Check out the terms and fees first, though — you don’t want to pay more than you have to just to add a few points to your score. Whatever new card you get get, though, it won’t help if you destroy it. You have to use it to prove you can manage it.

And on the subject of obtaining more credit, go slowly. Only apply for what you want and need. As I said, one more card is fine right now. Going bonkers and filling out every application you can find all at once will take your score down a bit, as inquiries comprise the final 10 percent of a FICO score.

Follow this plan, my friend, and, in five years time, your credit rating will be the envy of every other 25-year-old. Not that I recommend you whip it out at parties or anything …