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Happy young man using smartphone to make purchases with his new credit card.
Online shopping. Happy young man using smartphone and plastic credit card, paying in internet, standing on white background

Do you know how to use a credit card to build credit? It’s one of the oldest tricks in the book! 

Getting a credit card and using it regularly and responsibly is one of the quickest and most effective ways to build or rebuild your credit. Read below for some good practices and a few mistakes to avoid.

Pay On Time and In Full

Your credit score tells creditors how you manage borrowing money and repaying it, also known as your debt. A strong credit score shows you have a good record of making on-time payments on any money you’ve borrowed. However, if you’ve never had to make these payments, you’ll need to build up your history to even have a score.

Consider putting your regular expenses on a credit card to help establish credit without going into debt. Paying off your credit card balance in full and on time each month reports a great repayment history to the credit bureaus and ensures you won’t have to pay any interest.

Your payment history makes up 35% of your FICO credit score, so this is one of the best things you can do to build your credit.

Keep a Low Balance

Keeping your credit card balance relatively low can provide a significant boost to your credit whether you’ve just started or are rebuilding with better habits. When using your credit card, be mindful of your credit utilization, which is the amount you owe as a percentage of your available credit. You should aim for 30% or lower.

When you’re swiping a card rather than handing over cash, it can be easy to lose track of how much you’ve spent. Get in the habit of checking your transaction history once or twice a week to make sure you’re not creeping too close to the recommended 30% or lower credit limit utilization.

Become an Authorized User

One of the easiest ways to establish credit from nothing is to become an authorized user on someone else’s account. 

An authorized user is an extension of the primary cardholder but isn’t responsible for paying the bill or undergoing a credit check. You’ll receive a card connected to that person’s account and this enables you to make purchases on behalf of their credit limit. Being an authorized user won’t help you build credit as quickly as with your own card, but is still worthwhile.

Remember, your credit report and history are reflective of that credit card’s payment and utilization history so be sure to choose someone who is financially responsible.

Avoid Having Too Many Cards

When you close a credit card account, you instantly reduce the amount of credit available to you. This can negatively impact your credit score because it will likely increase your credit utilization rate. For this reason, it’s usually best to keep credit card accounts open, even ones you haven’t used in a while. 

If you’re trying to rebuild credit and think you have too many cards or ones no longer in use, avoid closing accounts without first considering the impact on your credit score. It’s better to leave your credit card accounts open and make very small purchases to prevent the account from being closed. 

Consider keeping that card as a backup, especially if it comes with a higher interest rate or a higher credit limit. Having this one in the wings can help you keep costs down and, if it has a higher limit, can keep your spending in check.

Don’t Ask For More Credit Too Soon

New credit inquiries show up on your credit report each time you apply for a new credit card and will bring down your score by a few points. That’s why it’s good practice to pay off the balance in full and on time each month.

Having too many inquiries in a short amount of time can make potential lenders categorize your application as a high risk. Spacing out your credit applications by at least six months is a best practice especially if you’re new to establishing credit. 

Now That You Know How to Use a Credit Card to Build Credit, Let’s Talk About Interest

Now that you understand how to responsibly use a credit card to build or restore your credit, read below to familiarize yourself with how credit card interest works. 

Knowing how credit card interest works in addition to the above tips will ensure you save money while building your credit!

How Does Credit Card Interest Work?