You can build credit with a credit card by regularly using the card, using a small amount of your credit limit and making all of your payments on time. By following these tips, you can build a good credit score.
Credit cards offer one of the best ways for you to build your credit and improve your credit scores by showing how you manage credit on a regular basis. If you want to build good credit, use credit cards regularly while making all your payments on time and using a small portion of your cards credit limit. Heres what you need to know.
Using a credit card responsibly is one of the best ways to build your credit history and improve your credit scores. But how exactly does swiping that piece of plastic help your credit? Let’s break it down.
How Credit Cards Build Your Credit
When you use a credit card, the card issuer reports your account activity to the three major credit bureaus – Experian, Equifax, and TransUnion. This includes information like:
- Your credit limit
- Your monthly balances
- Whether you make your payments on time
- How much of your available credit you’re using
The credit bureaus take this information and use it to create your credit reports. Your credit reports are then used to calculate your credit scores – the three-digit numbers that give lenders a quick snapshot of your creditworthiness.
So by using a credit card responsibly, you give the credit bureaus positive information that can boost your credit scores over time.
Responsible Credit Card Use for Building Credit
Simply having a credit card isn’t enough to build your credit. You need to use your card in a responsible way. Here are some tips:
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Pay your bill on time every month Payment history is the most important factor in your credit scores Even one late payment can negatively impact your scores, Set up autopay or calendar reminders to avoid missed payments,
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Keep balances low. You want your balance to be less than 30% of your credit limit, but lower is better. Shoot for less than 10% if you can.
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Use your card lightly but regularly. You don’t need to swipe your card multiple times a day, but occasional, regular use shows lenders you can manage credit.
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Don’t max out your card. It hurts your credit utilization rate and makes it harder to pay off the balance each month.
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Pay off balances in full each month. Carrying a balance leads to interest charges and can quickly snowball into unmanageable debt.
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Check your credit reports. Make sure there are no errors or fraudulent accounts hurting your scores. You can check your reports for free.
Following these responsible habits demonstrates to lenders that you can handle credit wisely. As a result, your credit scores will gradually improve.
How Long Does It Take to Build Credit with a Credit Card?
Building strong credit doesn’t happen overnight. It takes patience and persistence. Here’s a general timeline:
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1-6 months: Your new credit card starts reporting to the credit bureaus. You may see a small score increase.
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6-12 months: With consistent on-time payments, your scores should steadily climb. Utilization also matters.
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12-24 months: Your credit history length grows. More positive information helps your scores.
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2+ years: You should have a decent credit history if you continue responsible habits. 700+ scores are achievable.
The longer you use credit responsibly, the more your scores will benefit. Aim to build a robust history over many years. Don’t expect quick fixes or dramatic short-term boosts. Slow and steady credit card use wins the race.
Credit Card Strategies for Building Credit
How exactly should you use a credit card to build your scores? Here are some proven strategies:
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Open a secured card if you’re just starting out. This requires a refundable deposit and helps establish initial credit history.
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Become an authorized user on someone else’s card. Their good history gets added to your reports.
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Make small initial purchases on a new card, such as a monthly streaming subscription. Pay it off promptly.
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Use your card regularly for routine expenses, but keep balances under 10% of the limit.
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Pay down balances just before the statement closing date to lower your reported utilization.
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Set up autopay for at least the minimum due to avoid late payments. Manually pay any remaining balance.
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Ask for credit limit increases over time to keep utilization low as you spend more.
The key is using your card frequently enough to build a history, yet keeping balances and utilization in check. With time and patience, you’ll be rewarded with higher scores.
Can You Build Credit Without a Credit Card?
Credit cards offer a convenient way to establish credit history, but they aren’t absolutely necessary. You can build credit through other means, such as:
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Credit builder loans – These report on-time payments to the credit bureaus.
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Authorized user status – Getting added to loans like auto, mortgage, etc can help.
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Student loans – Keep up with all payments while enrolled and after graduating.
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Secured loans – These require collateral but demonstrate responsible credit use.
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Rent reporting services – Elect to have monthly rent payments added to your credit reports.
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Checking/savings accounts – Some banks report account management to bureaus.
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Phone/utility bills – Experian Boost lets you add positive payment history from bills.
The key is to have some type of credit or loan that gets reported to the bureaus and shows you pay on time. Credit cards offer a convenient way to do this, but they aren’t the only path.
Wrap Up
Does using a credit card build credit? Absolutely – but only if you use it responsibly. Pay your bills on time, keep balances low, and let your good habits compound over years. Monitor your credit reports and aim for score increases over time. While not mandatory, credit cards make it easy to establish positive history. Use them as tools, not as free passes to overspend. Your disciplined efforts will pay off with improved credit.
How To Start Building Credit With a Credit Card
Credit cards help you build credit because credit card issuers typically report your account and activity to the national credit bureausâExperian, TransUnion and Equifax. The bureaus then use this information to create your credit reports, which are the basis of your credit scores.
To start building credit with a card, youll need to either open a credit card of your own or become an authorized user on someone elses credit card. Getting a card of your own can be difficult if youve never had credit before, or if you have poor credit. However, there are options.
- Secured credit cards are often a stepping stone if youre starting to build or rebuild your credit. These cards function like normal credit cards, but youll have to send the card issuer a refundable security deposit when you open your account. Secured cards may have high fees and dont necessarily offer great cardholder benefits, but responsible use can help you qualify for better credit cards later.
- A student credit card can also be a good first option if youre a student. Student cards tend to have low credit limits; however, there are student cards available that have few fees and offer rewards on purchases.
You can also ask a friend or family member to add you as an authorized user on one of their credit cards. When they do, their credit card company can report the account to the bureaus under your name as well. Youll get your own card and can make purchases, as long as the primary cardholder agrees.
Having another persons card as part of your credit history can help you build creditâas long as the primary user manages their card well. Your credit wont be helped if the primary cardholder doesnt make payments on time, for example.
Once you begin building good credit of your own, it may be easier to get approved for different types of unsecured credit cards.
How to Build Credit Without a Credit Card
While opening and using credit cards can be a good way to build credit, theyre not the only option. Loans and other types of accounts can also help if theyre reported to the credit bureaus.
When youre starting out, you could look into credit-builder loans, which are designed specifically for this purpose. Other common loans, such as student, auto and mortgage loans can also help you build credit.
As with credit cards, making payments on time with loans is the most important factor in building credit. Your remaining balance can also impact your scores, but its not as important as utilization rates on credit cards.
Other types of accounts, such as utility and phone plans, often dont get reported to the bureaus or impact your credit. However, Experian Boost®ø is a free service that allows you to add your phone and utility accounts to your Experian credit report so they can help you build credit. There are also rent reporting services that you may be able to use to add your rent payments to your credit reports. As mentioned, there are several other ways to build credit, with no credit history.
How to Build Credit with Credit Cards
FAQ
Does using your credit card increase credit score?
When handled responsibly, a credit card can help you build your credit history, which could be helpful when looking for an apartment, a car loan, and even a job. Access your FICO® Score for free within Online Banking or your Mobile Banking app.
Does using a credit card build credit score?
Yes, credit cards to build credit but debit cards do not. You’re paying off any purchases you make on the credit card, you can pretty much put any expense on a credit card for the most part. Any loan or credit product will build credit. This includes mortgages, personal loans and credit cards.
How much will your credit score increase with a credit card?
Answer: Opening another credit card could help the score a little (about 4 to 6 points). Scenario: You have less than 4 accounts, (1 credit card, 1 car loan and 1 utility account). Answer: Adding a 2nd credit card account will substantially improve your score (about 7 to 15 points).
How often should I use my credit card to build credit?