How to Use a Credit Card to Build Credit

Getting a credit card and using it responsibly can be one of the best ways to build a solid credit history. You may need to build your credit if you have little or no credit history or if you've had some financial difficulties that have led to poor credit.

Having good credit is critical for getting approved for financial products like car loans and mortgages. With a higher credit score, you can get better rates, which can save you money. Employers may look at your credit score when deciding whether to hire you and insurers may even use them, to set your premiums.

Learn how to use a credit card in a way that can improve your credit score and strengthen your financial health.

Key Takeaways

  • A credit card is one of the easiest ways to build or rebuild your credit.
  • If you don't qualify for a regular credit card, you can turn to options such as secured card to start building credit.
  • When you have a credit card, make all your monthly payments on time and try to pay your balance in full each month.
  • Paying more than the minimum each month will help keep your credit utilization ratio lower.
  • Credit cards report your payment history to credit bureaus, which set your credit score.

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Authorized Users 

The Credit Card Accountability, Responsibility and Disclosure Act of 2009—or the CARD Act—made it more difficult for younger Americans to get their own card. An applicant younger than 21 has to show proof of financial means to handle their debt or get another person to co-sign.

If you can't get approved, one option may be to become an authorized user on another person's card, such as a parent's card. However there are risks to consider.

Your credit score will get a boost if the cardholder pays the bill consistently. But if they don’t, your FICO score can suffer.

Another person would assume a risk as well by taking you on as a co-user. They would be responsible for the balance, regardless of who incurred the charges. So if you become an authorized user, make sure you and the cardholder have a clear, mutual understanding of how much you can spend each month.

Some companies offer student credit cards that have less stringent requirements for approval. They may offer lower credit lines and charge higher interest, but they will help you build credit if you use the card responsibly by making repayments on time and keeping your balance low.

Debit cards do not help build your credit history because they don't provide a line of credit. Banks typically don't report debit card activity to the major credit bureaus.

Secured Credit Cards

A secured credit card uses a deposit as collateral for a credit line to minimize their risk. Typically, the credit limit on your card is based on the amount of that deposit. Some cards may require a deposit as low as $200 or $300.

A secured credit card can help build credit history as the bank reports your regular payments to credit bureaus. As you prove your reliability, you may then be able to qualify for a non-secured card with a higher credit limit. Compare the annual fees and other charges on any cards you're considering.

If you can't get approve for a standard credit card, another option is to apply for a store credit card, or branded card, offered by many retailers.

Store credit cards are generally easier to get if you have little or no credit history. However, they tend to have higher-than-average interest rates, so carrying a balance can be expensive.

How a Credit Card Can Help Your Credit

They key to building credit with a credit card is to prove you are a responsible borrower. You can do that by making your payments on time. If you can, pay your balance off in full or make more than the minimum payment.

Avoid spending your entire credit limit, which can harm your credit score. A higher credit utilization ratio reflets negatively on your credit score. Try to keep your credit usage below 30% of your approved credit limit. So, for example, if you have a total credit limit of $9,000 on your cards, try not to owe more than $3,000 on them at any given time.

Also avoid applying for many credit cards. Each time you apply for credit, your credit score will take a hit. Although you might improve your credit utilization ration with more cards, having multiple credit cards can increase the risk you will incur more debt.

What's an Authorized User?

An authorized user is someone who has permission to use another person's card to make purchases. They are added to the account by the primary cardholder. The authorized user's credit score can increase when the primary holder pays the bill consistently.

What Is a Secured Card and How Does it Work?

Secured credit cards are credit cards that require a “security” deposit, which determines your credit limit. The advantage to a secured card is that account activity is reported to all three major credit bureaus, which helps you build credit history if you don't qualify for a non-secured credit card.

What's Your Credit Utilization Ratio?

A credit utilization ration is the percentage of your available credit that you used, or your balance, compared to your total credit line. So, for example, if you have a total credit limit of $9,000 on your cards, and you have used $3,000, your credit utilization ratio would be 30%.

The Bottom Line

Without credit history, you might find it difficult to get a credit card or other financial products like a car loan or a mortgage. Using a credit card responsibly is one of the easiest ways to build (or rebuild) your credit history. If you don't qualify for a regular credit card yet, you can start with options like a secured card, student card, or a store card. Once you get a credit card, be sure to pay on time and try to keep your credit utilization ratio low.

Article Sources
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  1. Federal Trade Commission. "Credit Card Accountability, Responsibility and Disclosure Act of 2009."

  2. Experian. "Credit Card Authorized User: What You Need to Know."

  3. Fico. "FICO score."

  4. Chase. "Do Debit Cards Build Credit?"

  5. Equifax. "Do Secured Cards Build Credit?"

  6. Experian. "Credit Card Authorized User: What You Need to Know."

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