How to Use a Credit Card to Build Credit? 5 Proven Ways

Credit cards, be it a student card, travel card, or business card, are great instruments to take charge of your finances like a boss. When you use them regularly and make payments on time, you can generate an excellent credit score, which can help you in a lot of ways. 

Wondering how to use a credit card to build credit? The first step is to get the right card, and then it will be smooth sailing to start establishing a credit history. We will tell you how to do it in this blog, so read it till the end. 

How to Build Credit with a Credit Card?

Since credit bureaus like Equifax, TransUnion, and Experian are the credit regulating bodies, it is important to abide by their laws to establish good credit. 

Here are a few tips for using credit cards to build credit:

The single greatest approach to using a credit card to establish good credit is to make all of your payments on time. 90% of the best lenders utilize your FICO score, which is based in part on your payment history and accounts for 35% of your credit score. 

A history of on-time payments not only contributes significantly to a good score but also shows lenders that you are a responsible borrower. On the other hand, missing payments damage your credit score and remain on your record for seven years.

To keep interest costs from accruing, you must pay off your credit card debt in full each month. Also, to ensure you never forget a payment, set up automatic payments for the minimum amount owed.

It is not beneficial to consistently make the minimum payment, even though it is the minimal amount needed to avoid late fees and penalties. This is because credit card companies frequently impose high interest rates on the outstanding balance, and keeping debt for a prolonged period can result in the accumulation of substantial interest costs.

So you must pay your bills in full every month to build a good credit record. 

Every time you apply for new credit and there is a hard inquiry on your credit reports, your credit scores may get slightly impacted. Thus, it’s advisable to use your credit card exclusively for a period after you have one. Make careful selections when applying for credit cards, and try to give yourself at least six months between applications for each new card when you’re ready for an upgrade with additional benefits.

Also Read: 10 best credit cards with no credit checks to build credit. 

The percentage of the credit you utilize to the total credit available to you is known as your credit usage. Divide your credit card balance by the limit on the card, then multiply the result by 100 to find your credit utilization ratio.

It is best if you maintain a lower credit ratio. Make sure your ratio is at most 30%, or for the highest scores, less than 10%. Reducing your credit card debt or extending your credit limit are the two methods by which you can reduce your credit utilization.

Credit cards provide profitable chances to accrue incentives and establish credit. However, if misused, they might result in excessive debt. The ideal method to utilize a credit card is to pay off the debt in full each month on time to avoid paying interest.

Moreover, make sure to use the credit card only for your needs and not your wants, and make a budget every month to keep track of the spending. 

These are the best ways to build credit with a credit card. The tips or steps written above will steadfast the process of increasing the FICO score. 

Types of Credit Cards You Can Use to Build Credit

You know before you start taking steps to establish your FICO score, the most important step to take is to pick the right card that will align and help you achieve your goal. 

Here are the types of cards you can choose from:

Secured Credit Card 

These cards are backed by cash deposits. The deposit acts as collateral and gives security to the issuers in cases of late or missed payments. Generally, the amount deposited becomes the spending limit of the card. 

Note that this type of card can be the best or only option for people with little to no credit history. 

Our recommendations for this type of card are a Quicksilver-secured card by Capital One, Self secured Visa card, and a Chime builder Visa card offering multiple reload locations. 

Unsecured Credit Card 

These cards do not require any security deposit to get approved. You are extended a line of credit which you can draw on and pay off with every billing cycle. The issuers determine eligibility based on your credit score, financial record, and income status. 

We would recommend Tomo credit cards and Cred.ai cards to manage your finances. 

Authorized User 

If you are facing a hard time getting approved or are under the age to apply for one, you can become an authorized user with another cardholder. This method doesn’t require opening a card account; rather, you can get added to an existing account. With regular payments each month, it can help you to start building your credit history from scratch. 

Please note that the authorized users and primary users must have a mutual agreement upon card usage, or else the FICO score will suffer in case of payment delay. 

Store Cards 

Store or retail cards are offered by retail establishments in association with financial institutions. These are generally close-looped, meaning, can only be used in the store or brand. You can benefit from cashback, reward points, discount deals, liability protection, and many more benefits with them. 

If there’s a brand you frequently shop from, check out their range of retail cards, features, and pricing and get started with your financial journey. 

BJ’s Capital One card and Loft MasterCard are among the best store cards that might help you with the establishment of your financial history. 

So these are the types of credit cards you can use to build your FICO score. 

We hope you will significantly boost your financial history by using your card responsibly. Please share this blog with other credit card holders to make them aware.  

Frequently Asked Questions 

 

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