You don’t have to be wealthy to build a strong credit score. In fact, it is very much possible to build great credit, without spending tons of money. Here’s how.

1. Have Someone Else Add You As An Authorized User To A Credit Card

Perhaps you have a friend or family member who has a strong credit score. You know the person we’re talking about. They’ve always got it together. Their finances are in order – heck, their life as a whole is in order. It’s impressive. 

You’re looking to get to where this person is. The good news is, it’s very possible – perhaps with the help of this friend or relative.

You’ll want to ask this person if they’re willing to add you as an authorized user to one of their credit cards. By becoming an authorized user, you’re not responsible for making payments on the card – whoever added you still is. 

However, you would be issued a copy of the card, and allowed to make purchases on the card. Of course, that’s not why you’re seeking to become an authorized user. Instead, you’re looking to improve your FICO score. 

As an authorized user, the card can be listed on your credit reports. This benefits you in several ways. 

First, the on-time payments by the cardholder, will appear on your credit reports. Second, the older their account is, the more it will help your score.

Payment history accounts for 35% of your FICO score, while age of accounts is 15% of your score. Thus, an older account, always paid on time, is very beneficial for you.          

Of course, the person who adds you to the card, is going to have some questions. After all, they’ve worked hard to improve their credit score. While they probably want to help you, they don’t want to put their credit at risk.

Here is the good news: They don’t have to. Adding you as an authorized user does not mean that they have to give you access to the card. Rather, they simply have to add your name to the account and you’ll benefit. 

The card issuer will typically mail over a copy of the card – but you can simply give it back to whoever added you to the card. That way, there is no risk to them, of you using it.

It’s also important to consider another risk: What if the person who added you to the card runs into financial trouble? What if, as a result, they cannot make payments on this card? Wouldn’t this damage your credit? 

It certainly would. Here’s the good news: It is very easy to be removed from a credit card, as an authorized user. All you have to do is call the credit card company, and ask for your name to be removed from the account. The account will soon be removed from your credit reports.

If you’ve done any kind of research on authorized user accounts, you’ve probably come across the concept of “buying” authorized user tradelines. As we’ve explained elsewhere, buying tradlines is costly, and often ineffective. 

Don’t bother with this strategy – instead, follow the steps discussed above. Doing so will allow you to steadily build (or improve) your credit score, without spending a penny. 

2. Open A Secured Credit Card

If you’re looking to build credit, merely being an authorized user is usually not enough. You’ll need to have open credit accounts of your own. Yet, if you’re new to credit (or have poor credit), it is quite hard to obtain approval for credit accounts. How do you get past this dilemma?

Secured credit cards are the answer you’ve been looking for. With a secured card, you provide the credit card issuer with a deposit, which equals part or all of your spending limit on the card. 

Let’s say you open a secured credit card with Discover. You provide Discover with a $200 deposit, which equals your spending limit. 

This means that you typically cannot spend more than $200 on the card. The credit card issuer does not face any additional risk, of you spending more than allowed. Thus, a secured card is a good idea for someone who doesn’t have any credit – or bad credit.

Of course, it isn’t enough to just open a secured credit card. You need to use the card wisely. This means not spending more than 10% of the card’s spending limit, each month. 

If you have a card with a limit of $200, that means you shouldn’t spend more than $20. You can make a small purchase that you would have anyways, such as gas or some groceries. 

You should always pay off the full amount spent on the card – on time. This helps you avoid paying interest on the card each month. It also allows you to build a strong credit history.     

Let’s again refer to our discussion of the 5 FICO scoring factors. Your payment history counts for 35% of your score. So, always paying on time will clearly help.

Next, your debts count for 30% of your FICO score. A big part of this is credit card debts. You want to try to keep your overall credit card balances, below 30% of your limits on the card – or even better, below 10%.

If you follow this approach, you’ll start to see your credit scores improve within 6 months, and a sizable jump in about one year. Building strong credit doesn’t have to be difficult – or expensive. 

3. Open A Credit Builder Account (Optional)

If you’ve followed the steps listed above, even just #2, your credit should be in quite a good place. By consistently paying a secured credit card on time, and keeping your balances low, you’ll steadily build a strong credit score.

However, if you’re looking to do even more for your credit, there is another option you should consider: A credit builder account..

Credit builder accounts work in an interesting way. Basically, the credit building company will set aside some money for you, in a savings account. 

You don’t provide them with this money (up front). Rather, they put their own funds into the savings account. You won’t have access to this savings account – at least not initially. We’ll explain why this money was set aside, in a moment.

For the sake of simplicity, let’s say that $600 was put in the savings account. Of course, the credit building company isn’t offering this money for free. They want to be paid back.

Let’s say that they have you start repaying this $600 on a monthly basis, at $25 per month. It will take you 24 months (2 years) to pay off the $600 that was set aside in your name. How does this help your credit score?

Basically, your payments each month are reported to the credit bureaus – as a loan. As we keep repeating, the more on-time payments you have, the stronger your credit score is. If you always pay your $25 on time, for 24 months, imagine how much stronger your credit score will be.

There’s another way in which having a loan benefits your FICO score. 10% if your FICO score is determined by your mix of credit – that is, what different types of credit accounts you have. If you have a credit card and a loan, that’s better than just having a credit card, or only opening a loan. The more different types of credit you have, the more your FICO score can benefit. 

Of course, you might have another question: What happens to the $600 you paid, over the past 24 months? After all, building credit is great – but you don’t want to just give away your money.

Here’s the good news: Most of that money comes back to you. At the end of 24 months, you’ll get back the $600, minus some interest and fees. Typically, you’ll get back around $520. This means that you spent just $80, to considerably improve your FICO score, over two years.

Self Inc. offers this exact sort of pricing for credit builder accounts. Self reports to all three credit bureaus. Self offers a 24 month payment plan. 

 Credit Strong is another option. Credit Strong is a bit more affordable, in that they offer a $15 per month plan, which can be customized to run for up to 8 years.

The most affordable plan of all is with Kikoff, which allows you to build credit for just $1 per month. While Kikoff is new, and does not yet appear to report to all three credit bureaus, it is an interesting option to consider.

You might recall that we mentioned earlier that the credit builder product is optional. As mentioned, the focus here is to build strong credit at a low cost. For many, paying $15 or $25 is too expensive. 

Yet, opening a secured credit card, making a small purchase, and paying off the card, is perfectly workable. If this sounds like you, you’re in luck.

While opening a credit builder account is great, it’s not mandatory. If you can’t afford to do so, simply stick with a secured credit card (and become an authorized user on a credit card, if you can). 

Even if you only open the secured credit card, and follow the rules detailed above, you should be able to build a pretty decent credit score, over time. Your FICO score would benefit even more if you also opened a credit builder account – but good credit is possible without it.

The Final Word

We’re living in challenging economic times. For many of us, money is tight. 

Yet, building a strong FICO score is more important than ever. Credit matters for so many aspects of our lives. From renting an apartment to buying a home to funding a business, your credit score is absolutely an important consideration.

If you follow the steps listed above, you’ll be able to build credit, without breaking the bank. This will, over the long run, save you quite a bit of money, and open new doors. Get started today.