Your Plan for Credit Score Progress: How to Grow Your Score

If your credit score is low (below 620) or you’re starting from zero, you might feel like you don't know where to start building credit. By knowing your options and picking a path that works for you, progress can begin today.

This guide is designed to work hand-in-hand with our overview of all Tools to Build Credit, so you can learn what might make sense for you.

The First Step to Beginning Your Credit Building Journey

Before you pick a path that works for you, you need to know the basics of how credit scores work. The three largest factors that influence credit scores (and where you should focus your efforts) are the following:

Payment history: This factor makes up about 41% of your VantageScore 4.0.¹ This means paying every bill by its due date is a big deal. Set reminders for important due dates, or explore ways to automate your payments.
Credit Utilization: This factor makes up about 20% of your VantageScore 4.0. You can think of your credit utilization as how much you owe compared to how much credit you have available. It is recommended that you keep your utilization within 30% of your total credit limit if possible.¹
Depth of Credit: This factor makes up about 20% of your VantageScore 4.0. There are two pieces to this factor – the age of your credit accounts, and the type of credit accounts you use. Having an older account age, and/or a mix of revolving and installment credit can help improve this factor.

A good first step is to check your credit report to understand your starting point, what factors you may need to improve, and confirm everything is up to date. After this, a great next step is finding tools that can help you improve your score.

Option 1: Secured Credit Cards

A secured credit card can be a good option for people who are starting to build credit or rebuild it.

How it Works: You make a cash deposit upfront, which is usually equal to your credit limit.⁴ For example, if you deposit $300, your credit limit is $300. Because you’re paying upfront, it may be easier for people with a lower credit score to get approved.
The Trade-Off: Minimum deposits often start around $200 to $300.⁵ If you don't have that cash on hand, this option may not be a good fit. (If that's your situation, check out Option 5 for an alternative.)
The Goal: Use the card for small things, pay the bill on time and in full every month, and keep your balance low.⁴

Option 2: Credit-Builder Loans

A credit-builder loan is a special kind of loan designed to help you build credit and save money at the same time. This option can work well for people who do not have a lot of existing debt.⁶

How it Works: Unlike a normal loan where you get the money first, the lender puts the loan money into a savings account or a Certificate of Deposit (CD) that you don’t have access to yet.⁶
The Trade-Off: The money is given to you once you’ve paid the loan amount in full. There may be fees or interest deducted from the amount that gets returned to you.⁶
The Goal: You make small, regular payments for a set time, usually 6 to 24 months.⁶ These on-time payments are what help build your credit history.

Option 3: Becoming an Authorized User

If you have a trusted family member or friend with good credit, becoming an authorized user on one of their credit cards can be a way to start building your credit history.³

How it Works: The primary cardholder adds you to their account. The account's history, including on-time payments and low debt, may then appear on your credit report.³ You’ll be given a card as well, but the good history can help you even if you never use the card.
The Trade-Off: The person who adds you must have healthy habits, such as always paying on time and keeping the balance low.³ If they miss a payment or max out the card, that negative action could also show up on your credit report.

The Goal: Add healthy credit factors to your profile if the person who adds you uses their credit responsibly.

Option 4: Rent or Bill Reporting

Paying rent or utilities can likely be your biggest expense every month. Those payments usually don’t automatically help you build your credit score, but there are services available that will report those payments for you.⁸

How it Works: Third-party services connect to your bank account to prove you paid rent, and then report that to the credit bureaus to add a new record to your account.⁸
The Trade-Off: This may not be available for all landlords, and there may be fees required to use this service. This payment history also might not be used in all credit scores.⁸
The Goal: Get on-time payment history added to your credit profile for an expense you have to pay every month.

Option 5: Explore an Alternative Credit Building Product

Different tools make sense for different people depending on their situation. For example, you may need to use $200 for an emergency instead of making a deposit for a secured credit card.

That's why Perpay built an alternative tool to help you build credit. You work hard for your paycheck, and Perpay helps you make your paycheck work harder for you.

Perpay+

Apply in 30 seconds – there’s no impact to your credit score when applying.*

How it Works: Enroll in Perpay+ to report up to a $1,000 spending limit to all three major credit bureaus (Experian®, Equifax®, and TransUnion®). Pay just $5/month through automatic payments directly from your paycheck, so you don’t have to stress about remembering to make a payment.
The Trade-Off: You are required to make payments through payroll direct deposit, which may not be an option for everyone depending on your employment status.
The Goal: Report your new spending limit and healthy credit factors (credit utilization, depth of credit, and available credit) to the major credit bureaus.

Perpay Marketplace

Once you’re enrolled in Perpay+, you can take your credit to the next level by shopping in the Perpay Marketplace.

How it Works: Use your spending limit to shop top brands in electronics, home goods, apparel & more. Pay over time for your order with small, automatic payments directly from your paycheck.
The Trade-Off: Similar to Perpay+, you are required to make payments through payroll direct deposit.
The Goal: On-time payment history is a key factor on your credit report.¹ Perpay’s automated payments from your paycheck can help you build a positive payment history that is then reported to the credit bureaus. See your credit score increase by an average of 32 points in the first three months.**

Conclusion and Next Steps

Knowing your options, and working on a plan to improve your credit is a huge step. The best plan for you is one you can stick with, and that can look different for everyone. For some, this might be a secured credit card or a credit-builder loan. For others, an affordable tool like Perpay, could be a good fit.

Frequently Asked Questions (FAQ)

How long does it take to see my credit score go up? It takes time to build credit, and it’s different for everyone depending on your situation. It takes time to build credit, and it’s different for everyone depending on your situation. There are varying recovery times for different actions, which could take anywhere from 3 months to over a year to repair. If you focus on healthy credit factors like on-time payments, you should see positive changes over the first year.²
What is a "hard inquiry," and will it hurt my score? A hard inquiry is when a lender checks your credit when you apply for new credit, like a loan or a credit card. It can lower your score by a few points, but the effect is usually small and only lasts for about a year.⁴
Is it better to have a mix of credit types? Yes, having a mix of credit types, like a credit card (revolving credit) and a loan (installment credit), can help your credit score.¹ It shows lenders that you can manage different kinds of debt responsibly. Perpay+ helps influence your depth of credit by reporting a new revolving credit account on your credit score.

Ready to find a credit-building path that works for your paycheck and your life?

Find out how Perpay can help you build credit today.

Sources:

^*Applying for a Perpay account will not affect your FICO® or Vantage® score. However, we may obtain information from Clarity which may affect your credit profile with this alternative credit bureau.

^**The credit score (VantageScore 4.0) increase of 32 points is based on the average of approximately 80,000 Perpay+ customers with a baseline credit score of 550 or below during the first three months of reporting. The same group observed an average credit score increase of 55 points over a two-year period if they maintained on time payments both on and off Perpay’s platform. Credit score improvement is not guaranteed, and individual results may vary based on a number of factors. Perpay will report your transactions to Experian®, Equifax®, and TransUnion®. On-time payment history can have a positive impact on your credit score. Late payments may result in payment reporting to credit bureaus that may negatively impact your credit score. This product will not remove negative credit history from your credit report. Perpay+ is only available to eligible Marketplace account holders. Fees apply. See the Perpay Terms and Conditions for more details.

Perpay does not provide financial, legal, or regulatory advice. The content is for general informational purposes only. Any views expressed are those of Perpay, not its partner institutions. We do not endorse or guarantee the accuracy of any linked third-party information. Links to Perpay products are advertisements. All external brand names belong to their respective owners.