Wondering how to build credit with a credit card?
The strategy will be different for each stage of your credit-building journey.
These credit-building strategies will work for most people.
- Pay credit card bill in time in full
- Keep credit utilization ratio less than 30%
- Avoid credit card debt
- Keep old credit card accounts open
- Use a secured credit card if you are just starting out
- Make use of student credit card/store credit card
- Be ready for the long haul
See how each credit-building strategy helps you and how you can use them to build credit.
How to Build Credit with a Credit Card?
Your credit card is one of the most effective tools for building credit.
We recommend these strategies to optimize your credit card use and build excellent credit.
1-Pay Credit Card Bill in Full Every Month
When you pay your credit card bill on time and pay in full, your credit score improves.
When you pay bills in full and carry no balance, it shows that you are using a credit card to spend your current income.
It also shows that you are not using a credit card to extend your income.
Also, when you pay your credit card bills on time, you won’t have to pay any interest.
2-Avoid Credit Card Debt
You need to be a careful spender to build your credit.
Think of your credit card as a debit card. Make a budget and live within your income.
Make a budget irrespective of your credit card. To build and maintain good credit, you’ll have to develop a habit of living within your means.
Spending with a credit card is easy, you just have to follow your urge. Most people overspend with credit cards and accumulate debt.
A credit card debt has a whirlwind effect. In many cases, people are unable to pay credit card bills in full and their credit score suffers.
3-Control Credit Utilization
The credit utilization ratio is the credit you use compared to the credit available.
Make a goal of keeping credit utilization under 30%.
For example, if your available credit is $30,000, use less than $9,000 of your credit.
The idea number in credit utilization is 10%. However, since you need to use some of the credit to build credit, you can focus on 30% credit utilization.
4-Don’t Close Paid Credit Card Accounts
Keep your credit card accounts open even if you are not using them.
Your credit accounts add to the total credit available to you. When you keep your spending in check, a bigger credit limit can help with the credit utilization ratio.
Your old credit accounts also help with your credit history.
Your credit history starts with your first credit card. Closing an old credit card reduces your credit history and lowers your credit score.
5-Choose Credit Cards Suitable for Your Goals
Consider how you’ll use your credit.
What are your goals with your credit card? Do you want to use your credit card for traveling, buying stuff, or financing your small business?
If your only goal with a credit card is to build credit, think about how you’ll use 10% of your available credit.
When you are building credit from scratch or you are repairing bad credit, a secured credit card is a good option.
If you are a frequent traveler, pick a credit card with generous travel rewards and low APR. However, keep credit use in control.
Bonus Tip: Did you know that you could get business credit on net 90 terms and also build business credit on the side? Check out list of net 90 vendors for building business credit to know more.
Related Article: Is 750 a good credit score
How Long Does It Take To Build Credit?
Building credit will take a different length of time for different people.
When you are just starting and there is no credit record, you will need at least 6 months to establish credit. Still, achieving a good or excellent credit score will take considerably longer.
When you are repairing your credit score, the amount of time required depends upon the amount of damage.
You can recover from the impact of a pattern of lousy credit use within 1-2 years. However, if you have had a bankruptcy, it may take up to 10 years to fully recover from the damage.
Still, in the case of bankruptcy, you can achieve a good credit score and gain access to most of the credit offers.
How To Get Your First Credit Card?
Getting your first credit card without a credit history or credit score limits your options.
When you are shopping for your first credit card, consider getting any of these three.
- Student Credit Card
- Secured Credit Card
- Store credit card
You can get most student credit cards at no annual fee. Many credit cards will also come with bonuses and rewards.
Secured credit cards can be opened by paying a security deposit equal to your credit card limit.
When getting a secured credit card, use these criteria to find the best-secured credit card.
- Low or No Annual Fees
- Low Minimum Security Deposit
- The Credit Card reports to all three credit report bureaus
- Watch out for hidden charges
Store credit card is easy to get and mostly cheap. However, if your spending habits are out of control, you may have to reconsider your choice.
Most store credit cards come at a high interest rate and hidden fees. Make sure you check the instructions etc. before getting the credit card.
How To Build Credit With A Secured Credit Card?
A secured credit card is suitable for anyone without credit or with poor credit.
A secure credit card is only helpful when you have good credit habits.
If you pay bills on time, live within your means, keep your credit utilization ratio low and pay your debts, a secure credit card will help you build credit.
Try to use your secure credit card daily and make small purchases.
Pay credit card bill on or before time every month.
Building credit with a secure credit card will require intentional effort for you for months. Be prepared to put in the work.
How To Build Credit With A Student Credit Card?
A student credit card is the start of your credit journey.
If you are younger than 18 years, you may need a cosigner to get a credit card.
For students under 21 years of age, they’ll need to show evidence that they have enough income to pay their debts.
You can show your part-time job income, parental support, student loans or any scholarships, etc.
Here are some ways you can build credit with a student credit card.
- Get a small limit student credit card
- Become an authorized user on a family member’s credit card
- Make a habit of paying your bills in full on time
- Keep only one credit account open at a time
- Use Experian Boost to get rent and utility payments counted towards your credit score
Develop And Maintain An Emergency Fund
An emergency fund is your saving set aside for a time of dire need.
As Dave Ramsey puts it, the pizza delivery guy knocking at your door is not an emergency. So keep the definition of emergency strict.
A good emergency fund should be at least $1000.
An emergency fund helps you stay responsible with your credit card and debt. You won’t need to use a credit card now and then.
Moreover, when you accumulate debt in a personal emergency, it may become hard to pay.
Life happens. We can’t stop emergencies but we can prepare for them with an emergency fund.