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How to Use a Credit Card to Build Credit

Written by Marc Guberti

Marc Guberti is a Certified Personal Finance Counselor who has been a finance freelance writer
for five years. He has covered personal finance, investing, banking, credit cards, business
financing, and other topics.
Marc’s work has appeared in US News & World Report, USA Today, Investor Place, and other
publications. He graduated from Fordham University with a finance degree and resides in
Scarsdale, New York.
When he’s not writing, Marc enjoys spending time with the family and watching movies with
them (mostly from the 1930s and 40s). Marc is an avid runner who aims to run over 100
marathons in his lifetime.

Updated June 6, 2024​

6 min. read​

how to use a credit card to build credit

If used responsibly, credit cards can be an effective way to build credit. You can meet your credit goals by using credit cards you already have or by applying for a new one. Either way, you’ll need to make your payments on time and keep the balances low for this strategy to work. But if you’d prefer not to use a credit card to build credit, there’s another viable option that you’ll discover in this guide.

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Understanding Credit Cards

Credit cards are financial products that allow you to make purchases with future money. You can borrow capital to buy goods and services today and repay your balance over time. It’s better to pay off your credit card debt as soon as possible to avoid interest accumulation.

If you can’t wipe out your balance at the end of each month, you must make the minimum payment to avoid late payment fees. Your first credit card likely won’t have the best perks, but you can end up with a better card as you improve your credit score. Consumers with high credit scores can have the best credit cards that offer competitive rates and rewards.

How Credit Scores Are Calculated

Your FICO score has five key components. Here’s how they compare:

  • Payment history: 35% of your credit score
  • Credit utilization ratio: 30% of your credit score
  • Length of credit history: 15% of your credit score
  • New credit: 10% of your credit score
  • Credit mix: 10% of your credit score

Making on-time payments will have the most significant impact on your credit score. A good payment history can also translate into a lower credit utilization ratio since you are trimming your debt.

Can You Use Your Credit Card to Build Credit?

You can use a credit card to build credit since the companies giving out the cards report your payment history to the major credit bureaus. This is an important distinction that separates credit cards from debit cards since none of your debit card activity gets reported to the major credit bureaus.

Credit cards allow you to build credit by demonstrating that you can pay your bills on time. You can also access more capital and end up with a higher credit limit. This credit limit strengthens your credit utilization ratio.

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How Fast Can You Build Credit with a Credit Card?

It’ll take at least six months to establish credit if you have no credit history. You can shorten this timeframe by becoming an authorized user on someone else’s credit card. If the credit card issuer reports your account history before you get added to the card as an authorized user, you could get a credit score right away. Otherwise, you’ll have to wait for six months.

What Are the Advantages of Using a Credit Card to Build Credit?

Using a credit card to build credit has several advantages. You can use every purchase as an opportunity to build credit. These financial products are also available even if you have a limited credit history. It’s possible to get started with a secured credit card.

Credit cards also come with enticing rewards like unlimited 2% cashback. You can earn points or cash with every purchase instead of being empty-handed. The credit you gain from these cards can help you qualify for better rates and terms when you apply for loans. It’s possible to save thousands of dollars over your lifetime if you build good credit with a credit card.

The flexibility of minimum monthly payments also makes it easier to build credit. While paying off your entire balance each month is optimal, you can get ahead by making a smaller payment each month.

Are There Disadvantages?

Using a credit card presents several advantages, but there is a considerable risk. If you fall behind on credit card debt and let interest accumulate, the card can end up hurting your credit score. You’ll end up with a weakened payment history and a high credit utilization ratio.

Your credit score won’t be the only thing hurting at that point. A high credit card debt will also hurt your finances and delay important milestones like marriage or buying a house. Credit cards require financial responsibility and discipline. If you do not stay on top of your credit card balance and always stop at the minimum monthly payment, this card can turn into a hindrance that moves you away from your long-term financial goals. The rewards program isn’t worth losing financial progress.

If you manage your finances well and stick to a budget, you won’t encounter these disadvantages of credit card ownership.

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How to Use a Credit Card to Build Credit

Pay On Time

Payment history is the most significant factor in your FICO score. If you miss a payment on your credit card and your account is past due for 30 days or more, it can be reported as delinquent to the major credit bureaus and have a negative effect on your credit score.

Unfortunately, information on your late payments remains on your credit report for up to seven years. So, you want to make timely payments each month to prevent this from happening. Also, consider setting up autopay on your credit card accounts to avoid missing payments and remain in good standing.

Keep Balances Low or at Zero

Your credit utilization rate, also known as the amount of available credit you use on your credit cards, is the second most important factor in your credit score. To illustrate, if you have five credit cards with $500 credit limits and spend $200 on each card, your credit utilization is 40 percent.

Ideally, you want to keep this figure at or below 30 percent – 10 percent or lower is even better if you’re seeking excellent credit.

Consider a Secured Credit Card

A secured card is ideal for individuals with bad credit or little or no credit history who are trying to rebuild their credit and get a better credit score. It operates like traditional credit cards but requires a security deposit to open an account and use the card.

You’ll generally get approved for a credit limit equivalent to the mandatory refundable security deposit, and you’re free to spend up to this amount. You’ll make at least the minimum monthly payment each month to keep the account in good standing. But you should probably pay more than this amount to improve your credit score. It’s equally vital that you get a secured credit card with minimal fees that reports to the three credit bureaus – Experian, Equifax and TransUnion – each month.

Also, be mindful that some credit card issuers will upgrade you to an unsecured credit card and refund your security deposit. However, you’ll need to demonstrate that you can responsibly manage the card for an extended period for this to happen.

If you’re looking for a secured credit card with no credit check and no minimum security deposit, then give the Current Build Card a try. The Current Build Card is perfect for those who have bad credit or have other obstacles in obtaining a conventional credit card. Building credit is as simple as adding money to your Current account and using it as you spend. Plus, with the Current mobile app, you can track all your purchases and spending. You can further improve your credit building with the AutoPay feature since payments are reported to a credit bureau, which builds your credit history. Open a Current account today with no subscription fees to access this revolutionary secured credit card.

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Limit Credit Card Applications

Each time you apply for a credit card, a hard inquiry is generated, which can drop your score by a few points. It may not seem like a big deal, but several inquiries in a short period could mean bad news for your credit score. Furthermore, potential lenders and creditors could see you as risky and deny credit applications even as your credit score starts to increase.

Maintain a Low Credit Utilization Rate

Your credit utilization rate impacts 30% of your credit score. This ratio measures your debt as a percentage of your credit limit. For instance, if you have a $10,000 limit and a $2,000 balance, your credit utilization ratio is 20%. A credit utilization ratio below 30% is good for building credit.

You can improve your credit utilization ratio by paying off debt or getting a higher credit limit. Some credit card issuers periodically raise your credit limit based on your payment history. However, you may have to request a credit limit increase from other issuers. The issuer will review your financial history before determining if you qualify for a higher credit limit.

Keep Old Credit Cards Open

The length of your credit history impacts 15% of your FICO score. Keeping old accounts open can help with building a good credit score. It’s possible to keep a credit card open with a single monthly subscription. You can put a streaming service or another subscription onto your older card to ensure it still has some activity.

Diversify Your Credit Mix

You shouldn’t get into additional debt just to diversify your credit mix. However, if you have multiple financial products like credit cards, auto loans, a mortgage, and other types of debt, your credit mix will improve. Credit mix makes up 10% of your FICO score. It’s a smaller part of the equation, but it is a good idea to know each component that influences your credit score.

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Becoming an Authorized User

If you have a friend or a family member who stays on top of their debt, you may want to consider becoming an authorized user of that person’s credit card. Authorized users benefit from the primary cardholders’ financial activity. Their on-time payments also show up as on-time payments in your credit history.

However, becoming an authorized user can also have its downfalls. If the primary cardholder does not make payments on time, it will have a negative impact on your credit score.

Choosing a Credit Card That Reports to All Three Credit Bureaus

Most credit cards report your payment history to all three credit bureaus. This distinction is important since the credit bureaus assign scores based on your financial history. If a credit card company only reports to one or two of the three bureaus, you can be missing out on a higher credit score.

The Bottom Line: Can You Build Credit with a Credit Card?

A credit card is just one way to build good credit, but it’s a great starting point. You don’t have to incur fees or pay any interest to get started. It’s possible to never pay your credit card company a single penny if you pay off your balance at the end of each month. If you don’t have any credit history, you can get started with a secured credit card. As you improve your score, you can apply for credit cards that offer better rewards programs.

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