How to Use a Credit Card to Build Credit

Credit cards provide an excellent opportunity to establish and enhance your credit scores through consistent credit management. To build good credit, utilize credit cards regularly, ensuring timely payments, and maintaining a low credit utilization rate. Here’s what you should know.

Commencing Credit Building with a Credit Card
Credit card issuers typically report your account activity to the national credit bureaus—Experian, TransUnion, and Equifax—thus creating your credit reports, which underpin your credit scores.

To initiate credit building with a card, you can either open your credit card or become an authorized user on someone else’s card. If you lack credit history or have poor credit, obtaining your own card may be challenging, but various options exist.

Secured credit cards often serve as a starting point for those building or rebuilding credit. Although they function like regular credit cards, you’ll need to provide a refundable security deposit to the card issuer upon account opening. While secured cards might entail higher fees and limited cardholder benefits, responsible use can pave the way for better credit card options in the future.

For students, a student credit card can serve as an ideal first option. While these cards typically come with lower credit limits, some offer rewards on purchases and few fees.

Alternatively, you may request a friend or family member to add you as an authorized user on their credit card. When this occurs, the credit card company reports the account under your name as well, granting you a card for personal use with the primary cardholder’s approval.

By incorporating another person’s card into your credit history, you can build credit, provided the primary user manages their card responsibly. If the primary cardholder fails to make timely payments, your credit may not receive any benefits.

As your credit improves through responsible credit management, your chances of getting approved for various unsecured credit cards may increase.

How to Optimize Credit Card Usage for Building Credit
A credit card’s impact on your credit can be positive or negative, depending on your approach. To achieve excellent credit scores, prioritize on-time payments and avoid maxing out your card. Here are the best practices to make the most of your credit card for your credit-building journey:

Timely Bill Payments
Your payment history is the most critical factor in credit scores. To build credit with your credit card, ensure you make at least the minimum payment on time every month. Missing the due date may result in fees and the loss of any promotional interest rates.

To avoid missing payments, set up autopay for the minimum amount and make additional payments separately if possible. A late payment, once 30 days past due, can negatively impact your credit scores for up to seven years.

Maintain Low Credit Utilization
Your credit utilization ratio, which compares your credit card balance to the credit limit, significantly affects your credit score. A lower utilization rate, achieved with a low balance, is more favorable for your credit.

Keep your card usage in check, especially if you have a low credit limit, to maintain a low utilization rate. For significant purchases, consider paying down the balance before the statement period ends, about 21 to 25 days before the due date.

While there’s no specific ideal utilization rate, aim to keep it below 10% for the best credit scores.

Ways to Establish Credit Without a Credit Card
Although credit cards are a popular method for building credit, they are not the only option. Other accounts, such as loans, can also help as long as they are reported to credit bureaus.

Consider credit-builder loans, specially designed for building credit from the start. Additionally, common loans like student, auto, and mortgage loans can contribute to building credit.

Similar to credit cards, on-time payments are crucial for building credit with loans. While the remaining balance can impact scores, it is not as significant as credit card utilization rates.

Certain accounts, like utility and phone plans, often do not affect credit scores. However, Experian Boost® offers a free service allowing you to add phone and utility accounts to your credit report, thus aiding in building credit. Rent reporting services are also available to add rent payments to credit reports. Remember, there are multiple ways to establish credit without a credit history.

Monitoring Your Credit Progress
Whether you opt for a credit card or a loan to build credit, tracking your progress is vital. You can monitor your credit report and score online, dispelling common credit myths. Experian provides free access to your credit report and FICO® Score☉, along with ongoing credit monitoring and alerts for any suspicious activity. Stay informed about your credit, see reported information, monitor score changes over time, and receive personalized suggestions for improving your credit.

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