Why Building Credit is So Important

A good credit score (FICO scores 670 and above) is essential to qualify for the lowest mortgage rates, snag a stellar credit card bonus and sometimes even land your dream job. Since your credit influences so many major life decisions, it’s important to build credit early and consistently.

You can build credit in any number of ways, including opening a credit card, paying eligible bills on time with *Experian Boost™ and getting credit for monthly rent payments.

Knowing why credit is so important can help motivate you to work on building a good credit score. Below, we outline a few major benefits of building credit, plus ways you can build a good score.

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Building credit may not be on your radar, but it should. Lenders check your credit history any time you want to open a new financial product, like a loan or credit card. They may only approve applicants who meet certain credit requirements, such as having a good or excellent credit score.

If you don’t have good credit, you may miss out on securing a low interest rate on a mortgage, personal loan or credit card, and wind up paying more during the term of your loan. But if you establish a good credit score, you can save money on interest payments and use the savings to invest in your future.

Credit also influences more than your ability to qualify for new financial products. Some employers may even check your credit report for potential red flags, like delinquencies or accounts that are in collections, before extending a job offer. The results of their credit inquiry may have an affect on whether they hire you or not.

Therefore, it’s important to build credit so you present your finances in the best possible way, whether it’s to a lender or prospective employer. Good credit gives you more freedom to qualify for the best financial products that can help you save money and achieve your goals.

Building a good credit score is beneficial for many financial and life decisions. Here are some of the major benefits of building credit.

Better approval rates

If you have a good credit score, you’re more likely to be approved for credit products, like a credit card or loan. Lenders will look more favorably on someone with a 760 credit score versus a 550 credit score. That said, many factors are taken into consideration during the application process, including your income and employment status.

Lower interest rates

The higher your credit score, the lower interest rates you’ll qualify for. Low interest rates can save you hundreds or thousands of dollars on personal loans, mortgages and credit card balances.

Better terms

Good credit can help you qualify for the best terms on basically every kind of credit product. You may receive a higher credit limit on a credit card or larger loan amount on a mortgage. You may even benefit from longer terms on your loan, such as a 30-year repayment period versus 20 years.

Robust benefits

If you want to benefit from robust credit card benefits, you’ll typically need a good or excellent credit score. The best credit cards offer annual credits on dining and travel, high rewards rates, lounge access and much more. While there are rewards credit cards for people with bad or fair/average credit, you’ll often miss out on these lucrative benefits.

Establishing credit can be done in a variety of ways. You may already be taking actions that affect your credit score without knowing it. Actions like paying your utility bill on time or keeping a low credit card balance can positively influence your credit. Similarly, missing payments or racking up high balances can hurt your credit.

In order to build or rebuild your credit, follow these good credit behaviors:

Open a credit card

A credit card can be a simple way to build credit, when you use it responsibly. You’ll benefit from the ability to buy now and pay later, while also establishing a credit score. There are credit cards geared toward consumers who have little to no credit history.

Consider CNBC Select’s best credit cards for building credit:

Become an authorized user on a credit card

If you don’t want to take on the risk of opening your own credit card, become an authorized user on someone else’s account. An authorized user is a relatively low-risk way to build credit since you can piggyback off of someone else’s credit (just make sure the account owner has good credit). 

Make on-time payments

Payment history is the most important factor of your credit score, so it’s important to always pay your bills on time. Autopay is a great tool that can help you schedule payments in advance, so you never miss a due date.

Pay bills in full

While you should make at least your minimum payment on time every month, try to pay your bill in full to reduce your credit utilization rate. This helps show lenders that you can responsibly manage your credit (and aren’t buying more than you can afford). That said, carrying a balance and incurring interest can be unavoidable at times. Paying some interest here and there isn’t the end of the world if it helps you make ends meet until you have the money available to tackle debt.

Get credit for eligible bills with Experian Boost™

Experian Boost is a free feature that lets you get credit for paying eligible monthly bills on time. Simply connect your utility, telecom and streaming subscription accounts to Experian Boost and get credit for positive, on-time payments. After you sign up and connect your bills, you’ll instantly receive new credit scores, which may reflect an increase. On average, users see a 12-point increase in their FICO® Score 8, which is based on Experian data.*

Get credit for rent payments

While mortgage payments appear on your credit report, rental payments typically don’t, though you can double check with your landlord. If you’re a renter with a history of positive payments, you may want to use a service like Rental Kharma or Rent Reporters that reports your payment history to the credit bureaus.

These services typically require verification with your landlord and charge a registration and monthly fee. Rental Kharma has a one-time $50 account setup fee and $8.95 monthly fee, while Rent Reporters charges a one-time $94.95, then a $9.95 monthly fee.

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Building credit doesn’t need to take up too much of your time. You can work certain actions into your routine, like setting up autopay or linking eligible bills to Experian Boost, that can benefit you in both the short and long term. The sooner you start building credit, the sooner you’ll reap the benefits.

At CNBC Select, our mission is to provide our readers with high-quality service journalism and comprehensive consumer advice so they can make informed decisions with their money. Every personal finance article is based on rigorous reporting by our team of expert writers and editors with extensive knowledge of personal finance products. While CNBC Select earns a commission from affiliate partners on many offers and links, we create all our content without input from our commercial team or any outside third parties, and we pride ourselves on our journalistic standards and ethics.

For rates and fees of the Discover it® Student Cash Back, click here.

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*Results may vary. Some may not see improved scores or approval odds. Not all lenders use Experian credit files, and not all lenders use scores impacted by Experian Boost.