3 Ways to Build Your Credit Score Without Going Into Debt

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  • Keep your oldest card open to help show lenders you have a credit history.
  • Make payments in full and on time to make the most of your payment history.
  • Boost your credit limit by requesting an increase every six months.

When it comes to building credit, borrowing isn't always the best strategy.

Your FICO score is like a report card for lenders. By looking at your borrowing history, lenders can determine how likely you are to pay them back if they extend credit. You may think that borrowing more will show lenders that you are a trustworthy borrower, but there are better ways to increase your credit score. Read on to learn more about how to boost your credit without sinking into additional debt.

1. Keep your oldest card

When calculating your credit score, credit reporting agencies consider a variety of factors including length of credit history. In fact, length of history is the third-biggest contributor to your overall score. Having a longer history of credit is considered a positive indicator when calculating your credit score, because it shows that you have a borrowing history.

Like many things in life, a credit score usually gets better with age. Length of credit history accounts for roughly 15% of your credit score. Of that category, one of the biggest contributors is how long your oldest account has been open.

But should you keep your oldest account open even if you aren't using it? Experts say yes. If your oldest account is one you opened in college and the next oldest is an account from your mid-twenties, you could be compromising your length of credit history by years just by closing an old account.

2. Pay on time and in full

Of the five factors considered when calculating a credit score, the biggest by far are payment history and amounts owed. These two categories account for around 65% of your total credit score, and can make or break your reputation as a borrower.

By paying your debts on time, you can begin building your payment history. Payment history is believed to be one of the strongest indicators of your likelihood to repay future debt, and is the top factor in calculating your credit score. Payment history considers payments made on everything from credit cards to auto loans and mortgage loans, and heavily considers on time versus late payments. The process of building a strong payment history can take a long time, but the payment of bills on time is a huge factor in your overall credit score.

The second biggest factor in calculating credit is amounts owed. Carrying a balance on a credit card is not necessarily a bad thing, but carrying balances on many cards can signal to a lender that you are overextended.

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3. Know your limits

Another piece of the FICO puzzle is credit utilization. Your credit utilization ratio is the percentage of available credit you use on a regular basis. Typically, a lower utilization reflects favorably on a borrower because it shows a lender that the borrower is not bumping up against their limit every month.

One way to keep a low utilization ratio is to have a high limit credit card or request credit limit increases on a semi-annual basis. By continuing to raise your available credit, your borrowing will take up a smaller and smaller percentage of your credit limit. You should not ask for an increase more frequently than every six months, which could indicate that you expect future financial trouble and may reflect poorly on your credit.

When it comes to building credit, going into debt may not be the best strategy. Instead, consider hanging on to your oldest credit card, paying bills in full and on time, and asking for a limit increase every six months. By using these three strategies, and by being patient, you can gradually boost your credit score.

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