How To Build Good Credit With a Credit Card (& Actionable Tips)

Using a credit card to build credit isn’t rocket science. Your score will increase if you use your card regularly and don’t miss payments.

However, your payment history is just one piece of the puzzle. Using your card properly can accelerate your credit score gains and help you attain excellent credit.

What is a credit score, and why does it matter?

A credit score is a numerical score lenders use to get a quick idea about how likely you are to pay back your debts.

There are lots of different credit scoring formulas, but the most popular, the FICO score, uses a range from 300 to 850.

The higher your score, the better.

Higher scores will help you qualify for loans and get better deals. Someone with great credit can borrow money at lower interest rates. People with poor credit might struggle to get loans and will pay higher rates.

And there are five factors that influence your credit score.

In order of importance, they are:

• Payment history: On-time payments help. Late or missed payments hurt you.

• Amount owed: Both the total amount you owe and the percentage of your credit cards’ credit limits you’re using. Less is better.

• Length of credit history: The longer you’ve had access to credit and the older your average loan or credit card is, the better.

• Credit mix: The more different types of credit, such as credit cards, mortgages, auto loans, or student loans you’ve had, the better.

• New credit: Applying for and opening new loans or credit cards drops your score slightly.

The first two factors, payment history and amount owed make up roughly two-thirds of your score, so they are the most important to focus on.

Why is using a credit card an effective way to build good credit?

Credit cards are an effective way to build credit for a few key reasons.

One is that credit cards can be inexpensive. You'll never pay interest if you pay your balance in full each month. That gives you a chance to build credit for free.

The other is that credit card companies will report your card activity to each of the three major credit bureaus. As a result, your score can rise as those bureaus receive information about your on-time payments and low card balance.

How do you build credit if you can’t get a card without already having credit?

You need a credit card to improve your credit score, but you will only be approved for credit if you have a good credit score. So it can become something of a chicken and egg problem.

The good news is that not all credit cards are equal. Some cards, like Capital One SavorOne, offer generous cash back and other perks, but approval requires a stellar credit score.

Fortunately, credit cards are specifically designed for people who need to build credit. One example is the Revvi credit card. Typically, these credit cards have lower limits, higher interest rates, steep late fees, and few perks.

You could also consider a secured credit card. They have fewer fees than other credit-building cards but require a cash deposit.

To start getting the most out of your credit cards, download Kudos today.

6 actionable tips for using credit cards to build good credit

Here are six actionable tips for using credit cards to build good credit.

1. Select a credit-building strategy

The first thing to do is to determine the strategy you’ll use to build your credit score. If you’re reading this article, there’s a good chance you’ve already settled on using a credit card.

However, you can consider alternatives.

For example, credit-builder loans are another option. They can involve fees and interest but let you build your credit score while building up a small amount of savings.

If you decide that a credit card is right for you, you’re ready for the next step.

2. Choose and apply for a credit card

Choosing the right credit card for building credit can be tough. There are just so many on the market. How do you decide which to use?

The truth, however, is that most cards for building credit aren’t advertised on TV or the radio all the time.

So instead of applying for premium cards with high credit requirements, you should look at two types of credit cards – credit building cards and secured ones.

Credit building cards don’t require a cash deposit but tend to come with high-interest rates and annual fees. On the other hand, secured cards require cash upfront but may have lower rates and annual fees.

Decide the card type you’d like to apply for, then look at the options.

Some key factors to look at include:

• Annual fees
• Other fees
• Interest rate
• Whether the card reports to all three bureaus
• Typical credit limits
• Whether the credit limit will increase
• The required deposit (for secured cards)
• When you get your deposit back (for secured cards)

You want to ensure you’re not paying too much to build credit, so look for cards with low interest rates and fees. And if you opt for a secured card, try to get a card that doesn’t demand a huge deposit and will automatically refund your deposit after you’ve built up your score.

Check out our credit card reviews if you need help finding the right card.

3. Automate monthly payments

The most common way to damage your credit score is to miss a payment due date.

Even a single late or missed payment will greatly impact your credit score, and it can take months of good behavior to overcome the drop in credit.

Thankfully, there’s an easy way to make sure you don’t have to worry about late or missed payments. Almost every card issuer offers automatic payments. So the first thing you should do when you get your card is to sign up for automatic payments of at least the minimum payment due.

Automating your monthly payments saves you the effort of manually paying your monthly credit card bill. That lets you build credit on autopilot, simply using the card and letting your automatic payments handle the rest.

4. Keep your credit card balance at less than a third of the limit

Your credit utilization ratio plays a significant role in determining your credit score. You can calculate this ratio by dividing your total credit card debt by the total credit limits of all your cards.

For example, if you only have one card with a $200 balance and a $500 limit, your credit utilization ratio is 40%.

A good rule of thumb is to keep your credit utilization ratio under 33%.

That means keeping your card’s balance under one-third of the credit limit. You can do this by making sure you don’t use the card too often or making payments multiple times during each statement period.

The good news is that credit bureaus don’t keep track of your card balances over the long run. Instead, they receive a snapshot with each statement. So if you have a high balance on one statement, pay it off, and your score will quickly improve.

5. Pay off the balance in full whenever you can

The best way to build credit is to make sure you make every card payment on time and to pay your card balance in full whenever possible.

But if you get a card with no annual fee, you could build your credit score entirely for free if you avoid interest by paying your bill in full every month.

One easy way would be to only use your card once a month for something with a consistent price, like a monthly cell phone bill or streaming service subscription. Then set an automatic payment to pay it in full. Now you’re making timely payments, keeping a low credit utilization, and dodging interest charges.

6. Monitor your credit score

Once you’ve started working to build your credit, it’s essential to monitor your credit score.

One reason is that watching your credit score rise over time can be very motivating. It’s exciting to see how your actions impact your credit score, and watching it go up can help encourage you to keep working to boost your score.

Another is that it allows you to identify errors on your credit report.

Everyone should occasionally look at their credit report to make sure its details are accurate. Credit bureaus can make mistakes, which can sometimes hurt your score.

Finally, monitoring your credit will help you know your credit score. Once your score improves, you can consider applying for another card, such as a cash back credit card. Likewise, once you get a better card, you can close the old one to save on fees or return your security deposit.

FAQs about building credit using credit cards

How often should I use my credit card to build credit?

Use your credit card often, preferably every month, and no less than once every three months.

What builds credit fastest?

There is no instant magic pill to building a credit history; improving your credit report will take time.

That said, the two best things to do are:

1. Pay your bills on time
2. Keeping your credit card balances low

Do I have to pay my credit card balance in full every month?

No, you don't have to pay off your credit card balance in full every month, but it’s still a good thing to do. Carrying a balance will mean paying a lot of interest. If your balance gets too high, it could also impact your credit until you pay it down.

Does having many credit cards build credit faster?

Having many cards doesn't build credit faster, and opening too many credit accounts can harm your credit score.

So instead, apply only for the credit you need.

Wise credit card use is the best way to build credit

Now that you know the best ways to build credit with a credit card, it is time to put your knowledge into action.

Wise credit card use is the key to building good credit.

Use your credit card regularly, keep its balance low, and pay on time without fail. You also know how to select the best credit card and have a roadmap to an excellent credit score.