Build credit while staying (mostly) debt free

Young woman checking phone after making a purchase
OCCU  -  01.18.2017

Swearing off credit cards might seem like a good idea. Debt? No thanks. Sorry, not sorry.

But the joy of avoiding the temptation of debt may be deceiving, like when you get denied an apartment because you have no credit. Turns out being financially responsible (as in debt free) actually makes you look irresponsible on paper. Cray, right?

Despite what the Great Recession may have taught you, credit is a pretty useful tool. You’ll need it for more than just borrowing money. Your credit score proves to the world that you’re worthy of trust. For example:

  • To snag that dream apartment, you’ll probably need a credit score of at least 620.
  • Nearly half of employers run credit checks on potential hires.
  • A credit score of 750 or higher can net you substantial savings on your cell phone plan.

Adulting without credit is like a vacay without selfies. You might be the most financially dependable person on the planet, but if there aren’t pics it didn’t happen.

The good news is that you can build up your credit score without taking on any long-term debt. All you need is time.

STEP 1: Apply for a credit card.

Building credit basically means borrowing money to show off how good you are at paying it back. The easiest way to get started is with a low-limit credit card. If you’re not down with packing plastic, you can take out a small line of credit or have someone co-sign for you on a car loan.

Debt-free tip: Just get one. More won’t help you build credit any faster.

STEP 2: Buy some stuff.

Your credit only grows if you use it. But you don’t get extra credit for using it all at once. You want to sip it like sparkling cider—not chug it like Mountain Dew. Keeping your balance below 30 percent of your limit makes you look good to creditors, so if you have a $500 limit, don’t charge more than $150.

Debt-free tip: Spend only what you can pay off each month.

STEP 3: Pay it back.

Will you pay your bills? On time? In full? These are the things creditors want to know about you. Since late or missed payments can ding your credit score, auto-pay is your new BFF. Just a few minutes of setup will make you look like a rock star.

Debt-free tip: Pay off your balance each month to avoid paying interest.

STEP 4: Rinse, repeat.

Now do it again next month. And the month after that. Keep it up, and over time you’ll earn a healthy credit score. You can watch it grow by glancing at your credit report once a year to check for any errors that need to be cleared up.

Still wary of credit? That’s not a bad thing. A little caution can help keep you out of debt—but it doesn’t have to hold you back from getting what you want in life.