How to Build Credit with a Credit Card

Using your credit card responsibly can be a good way to build credit over time. From paying your balance in full to paying your bills on time, every choice you make with your credit card could help shape your credit history.

Let’s explore how to build credit with a credit card and helpful tips for developing strong credit habits.

How credit cards affect your credit

Credit card issuers report your credit activity to the three major credit bureaus — Experian, Equifax and TransUnion. These credit bureaus use the credit information reported to them to create a credit report, which is a detailed record of your credit history, including information about loans, credit cards, and payments.

Your credit report is then used to calculate your credit score, which is a three-digit number lenders use to determine how likely you are to repay your debt. In general, when lenders are deciding whether you qualify for new credit, higher credit scores are considered more favorable.

As you continue to use your credit card, responsible credit habits, like paying your bill on time each month and keeping your card balance low, may help you improve your credit score. However, missing payments or maintaining high balances will most likely negatively impact your score.

5 ways to build credit using a credit card

Below are five ways you can use your credit card to help boost your credit score.

1. Use your card wisely

Just having a credit card isn’t enough to build credit — you need to use it responsibly. Using your card to make purchases and paying off the statement balance in full can help you build a positive credit history. Keep in mind that carrying a balance month to month can negatively impact your credit score, so be aware of how much you spend.

2. Keep your credit utilization ratio low

Your credit utilization ratio is the percentage of your total available credit you’re using, and it’s an important factor in your credit score. A high credit utilization ratio can negatively affect your credit score, while a low ratio indicates responsible credit management. You should generally aim to use less than 30% of your available credit.¹

3. Pay on time and in full if possible

Paying your credit card bill on time is crucial to building a positive credit history, so you should always pay by the due date. Most cards come with a predetermined monthly payment date, but you may be able to change your payment date to better fit your pay cycle by speaking to your lender.

Setting up automatic payments that draft your payment on your due date can help you make sure you pay your bill on time and avoid late fees. You can typically set your autopay amount to equal the minimum required payment, the full statement balance or another amount you choose. Just be sure that the account you’re using to pay your bills has enough money in it to cover what you’re scheduled to pay.

If you can manage it, it’s also good practice to pay off your full statement balance each month. Making only the minimum payment and carrying a balance month to month can lead to high interest charges, increasing your amount owed. Carrying a balance may negatively impact your credit score.

4. Keep an eye on how many credit cards you have

After you’ve successfully applied for and received your credit card, it’s likely that you’ll start getting offers for additional cards. It may be tempting to apply for new credit, but it may not be in your best interest.

Applying for a new card triggers a hard credit inquiry, which can have a small, temporary effect on your credit score. Applying for several cards at once may have an even bigger impact. And if you’re approved for more credit, new cards will give you additional bills to manage each month, making it easier to miss a payment by mistake or spend more than you can comfortably repay. Opening a new credit card also lowers the average age of your accounts, which can negatively affect your credit score.²

5. Become an authorized user

If you don’t qualify for a credit card on your own, another option is to ask to become an authorized user on a family member’s credit card. As an authorized user, you can get a card in your name, but the primary account holder is responsible for payments. When they make payments on time and in full, it may help both your credit scores. Many credit card issuers allow authorized users on existing credit card accounts as long as they meet the age requirements.

Just remember that if the primary account holder misses a payment or carries a balance, it can negatively affect each person’s credit score. Before you become an authorized user, be sure that you and the primary account holder understand the expectations, responsibilities and potential impact on your credit scores.

Types of credit cards that may help you build credit

Some credit cards are better suited for users who are new to credit and looking to build their credit history.

Secured credit cards

Whether you have no credit or less favorable credit, secured credit cards can help you build credit while laying the groundwork for responsible credit management.

Secured credit cards work differently from traditional credit cards. With a traditional card, you borrow money from the card issuer up to a credit limit they set based on qualifying factors like your income and credit history. When you apply for a secured card, you’ll be asked to place a refundable security deposit with the credit card issuer. If approved, you can make purchases up to that amount. For example, a $200 deposit would allow you to spend up to $200. The security deposit makes it less risky for the card issuer to extend a line of credit and makes it easier for you to qualify if you’re building or rebuilding your credit.

Making monthly payments on time on a secured credit card could help build or improve your credit score over time. Once you demonstrate responsible credit use for an extended period of time, some card issuers may refund your security deposit and let you graduate from a secured card to an unsecured credit card with a potentially higher credit limit.

Store credit cards

Store credit cards may also be a good option for building credit, but they can come with risks. It’s usually easier to qualify for a store credit card than a traditional credit card, and you’ll typically receive a sizable introductory store discount. But store credit cards can also have high annual percentage rates (APRs), which is the yearly cost of borrowing money, including interest and fees. Store cards may also have low credit limits and deferred interest. With a deferred interest promotion, you have a certain period of time to pay off your balance interest-free. If you don't pay off your balance by the end of the period, you'll owe all the interest that accumulated during that time.

If you opt for a store credit card to help you build credit, and it has a deferred interest or another introductory or promotional offer, you should aim to pay off the balance before the end of the promotional period and by the payment due date. Doing so will help avoid interest charges.

Rewards credit cards

Rewards credit cards can also be beneficial to your credit when used wisely. While reward categories vary (airline miles and other points-based rewards are popular options), many offer a percentage cash back, usually somewhere between 1-5% of each qualifying purchase.³ Other cards may reward you for being a responsible card holder by increasing your credit limit or lowering your interest rate over time. Note that rewards cards often come with annual fees which can reduce the value of your earnings.

If you choose a cash-back rewards card and pay off your balance in full each month, you can both build credit and use the extra cash to supplement your budget or pay down other bills.

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Build credit responsibly with your new credit card

Building or repairing your credit doesn’t happen overnight. It may take several months to start building credit if you use your new card responsibly and make payments on time.⁴ Remember that even one late payment can negatively affect your credit score.

Check your credit report regularly to see your hard work start to pay off. You can check your credit reports for free weekly through AnnualCreditReport.com, and if you’re a OneMain customer, you get free access to your VantageScore® credit score, which is updated monthly. With the right tools, a well-executed plan and patience, you may see your credit score increase before you know it.

Sources

1 https://www.equifax.com/personal/education/debt-management/articles/-/learn/credit-utilization-ratio/
2. https://www.myfico.com/credit-education/credit-scores/new-credit
3 https://www.experian.com/blogs/ask-experian/how-do-cash-back-credit-cards-work/
4 https://www.experian.com/blogs/ask-experian/how-long-does-it-take-to-build-credit/

This article has been updated from its original posting in 2021. John Frizzera, Jr. and Jessica Leshnoff contributed.