Best Practices for Using Credit Cards to Build Credit

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How To Start Building Credit With a Credit Card

Credit cards are a powerful tool for building and improving your credit scores by demonstrating responsible credit management. To build good credit, use your credit cards regularly, make timely payments, and keep your credit utilization low. Here’s what you need to know.

How To Start Building Credit With a Credit Card

Credit card issuers typically report your account activity to the national credit bureaus—Experian, TransUnion, and Equifax. These bureaus use this information to create your credit reports, which form the basis of your credit scores.

To start building credit, you can either open a credit card of your own or become an authorized user on someone else’s card. If you’re new to credit or have poor credit, consider secured credit cards, which require a refundable security deposit. Student credit cards are also a good option for students, offering low credit limits and rewards on purchases.

Alternatively, you can ask a friend or family member to add you as an authorized user on their credit card. This can help you build credit as long as the primary cardholder manages their account well.

Once you establish good credit, it becomes easier to get approved for unsecured credit cards.

What Are the Best Ways to Use a Credit Card to Build Credit?

Using a credit card responsibly can help you build positive credit. Focus on making on-time payments and keeping your credit utilization low. Here are some tips:

Pay Your Bill on Time

Payment history is the most crucial factor in your credit scores. Make at least the minimum payment on time every month. Setting up autopay can help ensure you never miss a payment.

Late payments can hurt your credit scores and stay on your credit report for up to seven years.

Maintain a Low Utilization Rate

Your credit utilization ratio, which is the balance relative to your credit limit, is also important. Aim to keep your utilization below 10% for the best credit scores. Paying down your balance before the end of your statement period can help maintain a low utilization rate.

How to Build Credit Without a Credit Card

While credit cards are a common way to build credit, they’re not the only option. Loans and other types of accounts can also help if they’re reported to the credit bureaus.

Consider credit-builder loans, student loans, auto loans, or mortgage loans. Making timely payments on these loans is crucial for building credit.

Other accounts, like utility and phone plans, often don’t impact your credit. However, services like Experian Boost® allow you to add these accounts to your credit report. Rent reporting services can also help add your rent payments to your credit reports.

Build and Monitor Your Credit

Whether you’re using a credit card or a loan to build credit, monitoring your progress is essential. Track your credit report and score online. Experian offers free access to your credit report and a FICO® Score, along with ongoing credit monitoring and alerts for suspicious activity.

By keeping an eye on your credit, you can see how your score changes over time and receive personalized suggestions for improvement.

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