9 Accounts That Build Credit - and 7 That Don't - Credit Strong (2024)

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Your credit scores are based on the information in one of your credit reports from a credit bureau — either Equifax, Experian, or TransUnion. As a result, if you want a good credit score, you need to focus on improving the underlying information in your credit reports.

Creditors, such as lenders and credit card issuers, generally report installment and revolving accounts to the bureaus. However, there are also different types of accounts within each category.

Installment Accounts that Build Credit

Installment accounts are a common type of personal and business loan. With an installment loan, you’ll generally receive the loan amount as an upfront lump sum. Many installment loans have fixed monthly payments, and you’ll repay the loan over a predetermined repayment period. A portion of each payment may go toward paying interest, and the rest will pay down the loan’s principal balance.

Here are a few examples of installment accounts that you can use to build credit.

Credit Builder Loans

Credit builder loans, such as Credit Strong accounts, are installment loans that are offered specifically to help you build or rebuild your credit.

When you open a credit builder account, the funds are set aside in a secured savings account. Each month, you make a payment and the lender reports your account information and payment to the three major credit bureaus. These on-time payments can help you build a positive payment history and improve your credit scores.

Once you pay off the loan, the savings account is unlocked, and you’ll receive the funds plus any accrued interest you have earned. As a result, you can build your savings while you build your credit.

Car Loans

An auto loan — not solely loans for cars — is another example of a secured installment loan. The vehicle you buy will be collateral for the loan, and the lender can repossess the vehicle if you fall behind on your payments.

Generally, you can take out a loan through the dealership where you purchase a car, or you can apply for financing directly from a bank, credit union, or online lender. When you take out an auto loan, you may be able to select your repayment term, such as 36, 48, 60, 72, or 84 months. You’ll then repay your loan with installment payments over that period.

Most auto lenders will report your payments to all three credit bureaus. However, some smaller lenders, such as regional banks or local credit unions, might only report your account to one or two of the bureaus. As a result, you’ll only build credit at those bureaus.

Other Types of Installment Loans

In addition to credit builder loans and car loans, there are several other types of common installment loans:

  • Personal loans: Personally loans are generally unsecured loans that people use to consolidate higher-rate debt, such as credit card debt, or pay for a specific purchase. For example, people may take out a personal loan to pay for moving, funeral, home improvement, or medical expenses.
  • Student loans: Both federal and private student loans are unsecured installment loans. Federal student loans can be easy to qualify for, as undergraduate federal loans don’t require a credit check or income. Lenders will also report your account to the credit bureaus while you’re still in school, even if you haven’t started making payments yet.
  • Mortgages: Home loans, or mortgages, are another common type of installment loan. Unlike personal or student loans, mortgages are secured accounts that use your home as collateral. Once you buy a home, you may be able to take out a second mortgage,which is either an installment loan (a home equity loan) or a revolving loan (a home equity line of credit).

There are other types of installment loans as well. For example, a business might take out an equipment loan to purchase a new piece of machinery. Similar to personal loans, the business will then repay the loan over time. If its creditor reports the loan to the business credit bureaus, it may even be able to establish business credit reports and scores, which are separate from the owner’s personal credit.

Revolving Accounts that Build Credit

Revolving accounts don’t have a predetermined loan amount. Instead, there’s a credit limit, which is the maximum amount you can borrow at a time. Your account balance increases as you borrow money, accrue interest, or are charged fees. However, you can decrease your balance and free up room in your credit line by making payments.

Unsecured Credit Cards

An unsecured credit card account is what most people think of as a regular credit card. The cards can come in many forms, such as cash back rewards cards, business credit cards, and premium cards that offer lots of benefits but have a high annual fee.

Most major credit card issuers will report your account to all three credit bureaus. In addition to making on-time payments, maintaining a low credit utilization ratio can be important for your credit scores.

Your utilization rate is calculated based on your revolving accounts’ balances and credit limits, as they appear on your credit reports. For example, a card with a $1,000 credit limit and $100 balance has a 10 percent utilization rate. If the balance increases to $500, the utilization rate goes up to 50 percent. Additionally, credit scores will consider your utilization rate on each card and your overall utilization from all your revolving accounts.

Paying down credit card balances may lead to a good credit score because it lowers your utilization rate. Ideally, you can shoot for a utilization rate in the low single digits, although some people use below 30 percent as a general rule of thumb.

A sometimes misunderstood detail is that credit card issuers often report your balance at the end of your statement period, which is often about three weeks before your bill’s due date for that period. As a result, you could have a high utilization rate (and be hurting your credit score) even if you pay your bill in full each month. To make up for this, you could use your card less often or make payments before the end of your statement period.

Secured Credit Cards

Secured credit cards are often a good option for people who are first building credit or have bad credit. To open a secured card, you’ll need to send the issuer a security deposit, which will often determine the card’s credit limit.

The security deposit limit’s the card issuer’s risk, which is why it can be easier to get a secured credit card than an unsecured card. However, both types of cards can help you build credit in the same way.

Family Members’ Credit Cards

Another option may be to become an authorized user on a family member’s credit card. If you do, some card issuers will report the account to the credit bureaus under your name and credit profile as well. It might help you build good credit if the other person uses the card responsibly. However, if they miss a payment or have a high utilization rate, that could also negatively impact your credit report. For this reason it’s almost always best in the long run to focus on building your own independent credit profile.

Personal and Home Equity Lines of Credit

You may also be able to get either an unsecured revolving line of credit, or a home equity line of credit (HELOC) that uses your home as collateral. In either case, your account may have a maximum available credit limit that you can borrow against multiple times, this is often called taking a “draw.” Some line of credit accounts come with cards or checks.

Some borrowers might use a line of credit rather than a credit card as they receive a lower interest rate and higher credit limit on the account. Lines of credit can also be a better fit than an installment loan as you’re able to take out multiple draws over time.

For example, you may be working on a home renovation project and need to make progress payments to the contractor. With an installment loan, you’d have to receive the entire loan amount upfront and start accruing interest right away or reapply for a new loan each time. But with a line of credit, you apply once and only pay interest on the amount you borrow, not your entire credit line.

Types of Accounts and Bills that Don’t Build Credit

Some regular and common bills don’t help your credit scores because the creditors usually don’t report the accounts to the consumer credit bureaus. However, you can sometimes find a workaround and use these payments to help you build good credit.

Your Rent

While rent is a common monthly bill, most landlords and property management services don’t report to the credit bureaus. As a result, paying rent won’t help your credit score.

There are third-party services that you can use to get your rent added to your credit reports. However, the arrangements can differ depending on the service.

Some services require landlords or property managers to sign up first. Others work directly with renters, although there may be an enrollment and monthly fee. If you’re signing up for a rent reporting service, look for an option that reports your rent payments to all three credit bureaus—some only report to one or two of the bureaus.

Bills That Don’t Come From Borrowing Money

Other common bills that usually won’t help you build credit include:

  • Utilities
  • Mobile phone payments
  • Streaming services
  • Insurance
  • Gym memberships

However, there are some services that you can use to add some of these accounts to your credit reports. For example, Experian Boost is a free program you can use to link your bank account and add utility, phone, and select streaming service monthly payments to your Experian credit report.

Adding these accounts to your credit reports won’t necessarily increase all your credit scores. Some credit scoring models including the older FICO Scores that are commonly used in mortgage lending, can’t read these types of alternative accounts. As a result, these types of payments still won’t impact those scores.

Debit Cards and Prepaid Cards

While your debit card might have a Visa or Mastercard logo on it, and you can use it to make purchases online like a credit card, it won’t help you build credit. Unlike a credit card, which involves borrowing money and then paying a bill, your debit card is directly connected to your checking account.

Similarly, prepaid cards won’t impact your credit scores because they don’t involve borrowing money—you’re only able to spend what’s already been loaded onto the card.

FAQs

1. Can you build credit without a credit card?

You can build credit by opening any type of account that’s reported to the credit bureaus. It could be a credit card, but you can also use other types of installment and revolving accounts to build credit. Having a mix of both installment and revolving accounts could be beneficial.

2. How do you build good credit fast?

Building good credit can take months or years. But one of the fastest ways to improve your credit is to have several accounts that are reported to all three credit bureaus and make on-time monthly payments. If you have a mix of installment and revolving accounts that may also help.

3. How can I build credit from scratch?

For many people, a credit builder loan, secured credit card, or student loan could be a good way to build credit from scratch. Once your account is open, make at least your minimum monthly payment on time to build your good credit history.

4. Should I get a credit builder loan?

You should get a credit builder loan if you want to build credit for the first time or rebuild your credit. Credit builder loans can also help you build credit and establish savings at the same time.

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9 Accounts That Build Credit - and 7 That Don't - Credit Strong (2024)

FAQs

What account builds credit? ›

Credit mix

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.

What credit card is easiest to get with no credit? ›

The Chase Freedom Rise℠ Credit Card is our top pick for best credit card for no credit because it requires no credit score to apply, charges a $0 annual fee and allows you to earn rewards while building or rebuilding your credit.

Which type of credit card does not help build credit? ›

Secured credit cards vs.

You load money onto the card, then the issuer uses that money to pay for your purchases. Since these cards don't extend any credit, account activity isn't reported to the credit bureaus. Therefore, you're not building a credit history by using a prepaid card.

What is the best bank to use to build credit? ›

Best credit cards for building credit
  • Best for average credit: Capital One Platinum Credit Card.
  • Best for students: Discover it® Student Cash Back.
  • Best secured card: Discover it® Secured Credit Card.
  • Best low deposit: Capital One Platinum Secured Credit Card.
  • Best for cash back: U.S. Bank Cash+® Visa® Secured Card.
May 31, 2024

How to raise your credit score 200 points in 30 days? ›

How to Raise your Credit Score by 200 Points in 30 Days?
  1. Be a Responsible Payer. ...
  2. Limit your Loan and Credit Card Applications. ...
  3. Lower your Credit Utilisation Rate. ...
  4. Raise Dispute for Inaccuracies in your Credit Report. ...
  5. Do not Close Old Accounts.
Aug 1, 2022

Which card is easiest to get approved for? ›

NerdWallet's Easiest Credit Cards to Get of June 2024
  • OpenSky® Plus Secured Visa® Credit Card: Best for No credit check and no bank account required.
  • Chime Secured Credit Builder Visa® Credit Card: Best for No credit check + flexibility and guardrails.
  • Mission Lane Visa® Credit Card: Best for Unsecured card for bad credit.

What type of credit card is best for bad credit? ›

NerdWallet's Best Credit Cards for Bad Credit of June 2024
  • Grow Credit Mastercard: Best for Building credit with subscriptions.
  • Credit Builder Secured Visa® Credit Card: Best for Adjustable credit limit.
  • DCU Visa® Platinum Secured Credit Card: Best for Low fees and interest.

What bank is the easiest to get a credit card from? ›

The Discover it® Secured Credit Card is our top pick for easiest credit card to get because it's geared toward those with limited/poor credit. It offers great rewards and charges a $0 annual fee. Plus, Discover will conduct monthly account reviews after seven months to see if you qualify to get your deposit refunded.

Does having a savings account build credit? ›

Your bank account information doesn't show up on your credit report, nor does it impact your credit score. Yet lenders use information about your checking, savings and assets to determine whether you have the capacity to take on more debt.

What is the #1 way to build your credit? ›

Make payments on time.

Credit-scoring companies FICO® and VantageScore® both say payment history can be a significant factor in determining your credit rating. You might consider setting up automatic payments or using email or calendar alerts to help ensure you don't miss a payment due date.

What credit card has $5000 limit with bad credit? ›

The U.S. Bank Altitude Go Visa Secured Card is the best option if you have limited/poor credit and are looking for a high credit limit. You can deposit anywhere from $300 to $5,000, making your maximum credit limit available $5,000.

What is the #1 credit card to have? ›

The best credit card overall is the Wells Fargo Active Cash® Card because it gives 2% cash rewards on purchases and has a $0 annual fee. For comparison purposes, the average cash rewards card in 2024 gives about 1% back. Cardholders can also earn an initial bonus of $200 cash rewards after spending $500...

What accounts do you credit to increase? ›

A credit increases the balance of a liability, equity, gain or revenue account and decreases the balance of an asset, loss or expense account.

What builds your credit score the most? ›

How do I get and keep a good credit score?
  • Pay your loans on time, every time. ...
  • Don't get close to your credit limit. ...
  • A long credit history will help your score. ...
  • Only apply for credit that you need. ...
  • Fact-check your credit reports.
Sep 1, 2020

Do savings accounts build credit? ›

Your bank account information doesn't show up on your credit report, nor does it impact your credit score. Yet lenders use information about your checking, savings and assets to determine whether you have the capacity to take on more debt.

What transactions build credit? ›

If you want to build credit without a credit card, you might try a credit-builder loan, secured loan or co-signed loan. There are also ways to use rent, phone and utility payments to build credit. Some of these ways are free, others carry a fee.

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