3 Credit-Building Tricks That Can Backfire

A good credit score can help with all sorts of things: buying a home, getting a new credit card or socking away savings. But while we all want to boost our scores as quickly as possible, credit building doesn’t happen overnight. It’s better to stick to core behaviors that merit good credit, like making payments on time, keeping debt balances low relative to credit limits, maintaining a variety of accounts and only applying for credit as needed. While it’s tempting to try quick fixes, it’s important to understand how a quick fix can actually cause more harm than good if you don’t execute it perfectly.

1. Taking Out a Loan Just to Build Credit

Let’s say you check your credit (you can see two of your credit scores for free each month on Credit.com) and find your credit score is lacking due to not having a variety of accounts. You may decide to open up a new kind of account, such as an auto or personal loan. However, experts advise not to take out a loan solely for credit-building purposes. The reason? Applying for credit can hurt your score in the short term, and you’ll have to pay interest on whatever you borrow — a high price to pay for good credit. Beyond that, it’s not worth it to borrow money you don’t need.

2. Getting a New Credit Card

Opening a credit card is one of the easiest ways to establish a credit history. Credit spending also has a huge impact on your credit scores since credit utilization — i.e., the ratio of credit card balances to credit card limits — is the second-biggest factor. Opening a new credit card could ramp up your limits while boosting your score in the process. But be careful — some credit cards have annual fees, and by opening a new account you’ll have one more thing to keep tabs on. As with the first example, this strategy doesn’t make sense if you don’t need a credit card in the first place.

3. Piggy-Backing on Someone Else’s Credit

Asking a close relative or friend to add you as an authorized user is another risky way to build credit. There are more risks to the primary cardholder because he or she would be accountable for your spending, but authorized users should know this isn’t a fast track to great credit. If the primary cardholder misses payments, it could show up on your credit report, and if you dispute them, the card may be dropped from the report altogether. Having an authorized user credit card can get your foot in the door, but credit scoring models don’t always weigh authorized users’ and primary cardholders’ history the same. To build a strong history, you’ll need to open your own account and prove you can responsibly spend and make payments.