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How to Build Credit with a Credit Card

Using a credit card responsibly could go a long way in building up your credit. These are some basic principles that can go a long with to build credit with a credit card.

Establishing and maintaining a good credit score is crucial for financial stability and access to favorable interest rates. One effective & popular way to build credit is through responsible credit card usage. Here are some musts' when trying to build credit with a credit card:


Building Credit with a Credit Card


Pay on Time


Paying on time is the biggest factor in your credit score, taking up 35%-40% of your credit score, dependent on the bureau. Make sure to pay on time, and in full if you can.


Missing even one payment can result in a big hit to your credit score that could take months or years to recover from. Setting up automatic payments could be a great way to ensure you never miss a payment, even if its just for the minimum amount. Making consistent on-time payments is the best way to demonstrate your credit worthiness.


Keep Utilization Low


Credit card utilization refers to the percentage of your available credit that you are currently using. If you are unable to pay off your balance in full, try to keep your balance less than 30% of your limit.


Keeping this ratio low shows lenders that you can manage your credit responsibly. High utilization can signal financial strain, negatively affecting your credit score.

Limit new credit applications


Every time you apply for a new line of credit, a hard credit inquiry is made on your credit report. Multiple inquiries within a short period can be interpreted as a sign of financial instability, potentially lowering your credit score.


Be strategic about applying for new credit and only do so when necessary. Consider the long-term impact on your credit and only pursue new credit when it aligns with your overall financial goals.


Many companies also allow you to see if you are pre-approved for a card or loan without impacting your credit score. They do this by completing a "soft inquiry" on your credit report. Contrary to a hard inquiries, soft inquiries do not impact your credit score as they are not tied to a specific application for credit.


Use card regularly (with a budget)


Using your credit card regularly and responsibly is crucial for building credit. Make small, regular purchases and ensure that you can pay off the balance in full each month. This demonstrates to creditors that you can handle credit responsibly. However, it's equally important to budget and avoid overspending.


Create a monthly budget, track your expenses, and only use your credit card for planned purchases within your financial means.


Keep credit accounts open


The length of your credit history is a key factor in determining your credit score. Closing old credit card accounts can shorten your credit history and potentially reduce your credit score. Keep your accounts open, even if you don't use them frequently.


Closing accounts may also impact your credit utilization ratio negatively, as your available credit decreases. Maintain a healthy mix of active credit accounts over time to positively influence your credit score.


Check credit regularly


Regularly monitoring your credit report allows you to catch errors, identify potential fraud, and track your progress in building credit. Obtain free annual credit reports from major credit bureaus and review them for inaccuracies.


Additionally, consider using credit monitoring services for real-time updates on your credit score and any changes to your credit report. Staying informed about your credit status empowers you to make informed financial decisions and address any issues promptly.


Monitor your credit report for accuracy and potential errors. You're entitled to one free credit report from each major bureau annually. Utilize free resources like AnnualCreditReport.com to track your progress and address any discrepancies promptly. Staying informed about your credit report empowers you to manage your credit effectively.

Building credit with a credit card requires discipline and responsibility. By following these six steps, you can leverage your card as a tool to unlock a brighter financial future. Remember, progress takes time, but with consistent effort, you can establish a strong credit foundation and achieve your financial goals.


Other Ways to Build Credit

If you are not interested in utilizing a credit card but still want to build your credit, there are other options.


Other types of loans


Loans can help you build credit history such as auto loans, home loans, student loans, or personal loans. Similar to credit cards, responsible use and on time payments can facilitate credit building.


Credit builder loans


Credit builder loans are used for people with limited or no credit history. Like a secured credit card, you will make a deposit into an account for collateral and then pay installments on the loan which is reported to the credit bureaus. This can not only build your credit but also boost your savings.


Experian Boost


Experian Boost is a free service by Experian that allows individuals to include things such as bills and utility payments in your credit rating. This could be big for people who are not interested in taking out a new line of credit but still want their credit to benefit from their monthly payments.


Become an authorized user


Becoming an authorizes user can help build credit. When you become an authorized user on someone else's credit card account, you are granted permission to use the credit card but are not legally responsible for the debt. The primary account holder's payment history can be reported on your credit report, helping build credit.


Become a cosigner


Becoming a cosigner on a loan or credit application adds you as a second person legally responsible for the debt along with the primary owner. Both the primary and cosigners payment activities are reported to the bureaus. With responsible use and on time payments, your credit score can benefit by being a cosigner.