Building Credit: A How-To Guide

Looking to build your credit? We’ve got a step-by-step guide to speeding up the process, plus a breakdown of what a credit score is, what it’s made up of, and how you can use this to your advantage.

How Do You Build Credit? | Understanding Credit Scores

How do you build credit? You have to understand it first.

Let’s start with what a credit score is. Put simply, it's a three-digit number that shows how reliable you are at paying back money to lenders, landlords, and sometimes even employers.

Credit scores range from 300 to 850, with higher scores basically meaning you have a better “grade” in paying money back.

The “grades” are broken down into categories that range from  “poor” to “excellent.”

Here’s how Experian breaks it down:

Excellent Credit: 800 to 850

‍Very Good Credit: 740 to 799

‍Good Credit: 670 to 739

‍Fair Credit: 580 to 669

‍Poor Credit: 300 to 579

A “good” credit score is usually defined as 670 or above. Most conventional loans require a good credit score.

A “poor” credit score is usually any score below 580. With a score in this range, you may have difficulty getting credit, or you may be required to pay higher interest rates or fees 🙃

If this is you rn, you’re not alone. Building credit is a long game, but it’s definitely doable. And with the right guidance, you can speed the credit building process up.

How Do You Build Credit? | What Makes Up a Credit Score

Once you know what influences your credit score, you can start to use this information to your advantage.

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Here’s the breakdown, according to Experian:

Payment History (35%): Consistently making timely payments has a positive impact, while late payments or defaults can drastically lower your score.

Credit Utilization (30%): The amount of credit you are currently using compared to your total available credit. It's generally recommended to keep your credit utilization ratio below 30%.

Length of Credit History (15%): The length of time you have held credit accounts for approximately 15% of your credit score. A longer credit history with positive payment patterns can improve your score.

Types of Credit Used (10%): The diversity of your credit accounts contributes around 10% to your credit score. Successfully managing a mix of credit cards, loans, and other accounts is viewed positively by lenders.

New Credit Inquiries (10%): Applying for new credit can impact approximately 10% of your credit score. Multiple inquiries within a short period may raise concerns and temporarily lower your score.

What’s important about all that? Timely payments make up most of your score. So you’re gonna want to find a way to make all your payments on time, and/or use timely payments to your advantage inbuilding credit fast.

We’re gonna show you how to do that.

How Do You Build Credit With the Credit Builder Card*?

So now you know timely payments make up the majority of your score. Here’s what you can do with that information:

●      Always pay your bills on time. Cleo's free budgeting feature can help you create a personalized budget and send reminders for bill payments. And, Cleo's Builder subscription lets you use these timely payments to improve your credit score.

●     Credit Report Monitoring: Regularly monitor your credit report to identify any errors as they occur and address them quickly -before they do any damage.

●     Using a credit card. Duh. But we know that if you have a poor credit score (between 300-579), you might be put off of certain credit products because of higher APR rates making them more expensive for people with poor credit. In this case, a secured credit card might be a good alternative, where you provide a security deposit that becomes your credit limit.

The Credit Builder Card* is a secured card we designed to help people mend their credit. The card comes with no interest charges and no credit checks (obviously).

Here's a step-by-step guide to building credit with our secured card:

Add Cash to Security Deposit: Begin by depositing some cash (a minimum of $1) to establish your credit limit.

Make Purchases and Timely Repayments: Use the card to shop, and make sure that you pay off the balance on time each month. To make this super easy, you     can use Cleo’s free budgeting features to set up reminders for bills. And make repayments automatic with autopay.

Track Your Credit Score: Monitor your credit score in Cleo's "borrow" tab to watch your progress.

To apply for the Credit Builder Card*, you need to sign up for the Cleo Builder subscription, which is $14.99 per month.

With this subscription, you get:

A Larger Cash Advance Option:** Access to cash advances of up to $270– more than what you get with a standard Cleo Plus subscription.

Priority Support: Get dedicated support throughout your credit-building journey.

Access to Free Features: Full access to all of Cleo's free features. Duh.

*The Credit Builder Card is issued by WebBank, Member FDIC pursuant to a license from Visa USA Inc. Access to the Card is subject to approval.

**“Cash/Salary Advance” and “Cashback Rewards” are features of the Cleo Builder Subscription and not the Credit Builder Card.

***The Cleo Plus subscription offers saving goals, hacks, challenges, APY on savings, credit score insights, and access to cash advances if eligible.