Building vs. Rebuilding Credit: What’s the Difference?


Having no credit and having bad credit can certainly lead to similar outcomes: You may be denied a loan, offered lesser financing terms or have to pay more fees on a cellphone or cable contract (among other things.) Establishing certain behaviors can help remedy either situation (more on this in a bit), but if you’re a credit newbie, your path to a good credit score is a bit clearer.

“Your progress can be steady and a little bit easier because of the fact that you don’t have a lot negative information weighing you down,” Bruce McClary, vice president of public relations and external affairs at the National Foundation for Credit Counseling, said. “You have the ability to responsibly open and manage credit so you can put yourself on track towards an optimum credit score.”

Getting Started

If you’re brand new to the credit world, it’s generally a good idea to look into a starter line of credit, like a secured credit card, student credit card or credit-builder loan, that can help you demonstrate that you’re capable of paying back a loan as agreed. (You can also look into becoming an authorized user on a family member’s existing credit card account, though make sure this activity gets reported to the three major credit reporting agencies, as not all issuers are in the habit of doing so.)

Once you’ve been approved, “the main thing you want to focus on is making your payments on time,” McClary said, since payment history generally rates as the most important factor when it comes to calculating your credit scores. You should also keep your debt-to-credit ratio low (balances below at least 30% and ideally 10% of your total available credit) and look to add a mix of credit accounts you can manage responsibly in the long-term.

On the Mend

Folks with bad credit, of course, also need to establish a positive payment history. They’ll want to apply the aforementioned principles, but may have a harder time securing new financing, thanks to the negative information on their credit reports. If your credit is in rough shape, you may want to research credit cards designed specifically for those with bad credit before filling out applications.

Moreover, to increase your scores (and the odds of getting a new loan), you should address the negative information that is weighing them down. For instance, “you don’t want any unresolved debt collection accounts” on your credit report, McClary said. These items can not only be costing you points, they could also lead to bigger problems, like a judgment or wage garnishment, down the road.

“You want to keep things from transitioning from bad to worse,” McClary said. “The sooner you can get those things resolved the easier it is to make faster progress on the rebuilding side.”

To pinpoint your credit score killers, you can pull copies of your credit reports. You should check these credit reports for errors that may be damaging your scores unnecessarily. You can monitor your credit regularly to track your progress as you take steps to improve your creditworthiness. (You can see your two free credit scores each month on

And, if you can’t seem to fix your credit no matter how hard you try, you may want to consider some outside help, like a credit repair company, consumer attorney or credit counselor. Just be sure to thoroughly vet anyone you are considering doing business with, as not all companies out there have your best interests at heart. A good credit repair company will explain exactly what it can and cannot do on your behalf and will never guarantee a “100-point rise in your credit score.” (You can learn more about how credit repair works here.)

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