It’s no secret that credit cards are a major part of modern life. In fact, around 175 million people in the US use them. 1 However, what many people don’t realize is that they’re more than just a financial tool—credit cards can also help you build credit.
Whether you’re thinking about getting your first credit card or you already have one and you want to improve your credit score, there are four steps you should follow so that you can use your card to give your credit profile a boost.
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1. Choose the right credit card
The first step is making sure that you start off with the right type of credit card for building credit. This is especially important (and will be more difficult) if you’re new to credit or if you’re trying to repair a damaged credit score.
Credit-building cards for people with bad credit
Fortunately, if your credit score leaves something to be desired, there are plenty of credit cards for people with bad credit that you’ll still be able to qualify for. Look into the following three options:
1. Secured credit cards
Secured credit cards (also known as credit-builder cards) are ideal for people who aren’t eligible for traditional unsecured credit cards, either because of an insufficient credit history or a bad credit score.
Just about anyone can qualify for a secured card because there’s no risk involved for the card issuer. That’s because they’ll ask you to pay a refundable credit card security deposit, which they can keep if you fail to pay your bills on time.
Once you’ve shown that you can manage your card responsibly, your card issuer may allow you to upgrade to an unsecured credit card with a higher credit limit and more attractive benefits.
2. Student credit cards
Student credit cards are designed for people who are still in college or graduate school. You can get a credit card at 18 years old, but you may need to show that you’re enrolled at a college or university to get a student credit card.
Additionally, according to the Credit CARD Act, if you’re under 21, you’ll need to either have a cosigner or show proof of income (e.g., from parental support, student loans, or a part-time job). 2
3. Becoming an authorized user on someone else’s card
If you’re trying to build credit as a teenager under 18, you don’t qualify for any of the credit cards above, or simply aren’t ready for the commitment that comes with opening a new credit account, then you have another option for building credit: becoming an authorized user on someone else’s credit card.
As an authorized user, you’ll get your own card and have access to the same line of credit as the primary cardholder. As long as the credit card company reports authorized users to the credit bureaus, they’ll add the primary cardholder’s payment history to your credit report. This credit-building strategy is known as piggybacking credit.
Make sure you pick someone who has a long history of managing their credit responsibly because if the primary cardholder misses payments or maxes out their card, then your score will take a hit rather than improve.
If this option doesn’t appeal to you, you can also open a joint credit card with someone else (ideally someone with a better credit score, which will also give you a chance to get a card you wouldn’t normally qualify for). However, co-owning a card can be risky, so if you can, we recommend just adding yourself as an authorized user instead.
Credit cards for good credit
If you already have a good credit score, then finding a credit card will be easy. Just look for one that has the following features:
- Low credit card APR (aka interest rate)
- High credit limit
- No annual fees
You can also look out for bonus perks, like exclusive rewards or an introductory 0% APR, but these qualities aren’t essential for building credit.
2. Always pay your credit card bills on time
Once you’ve chosen and acquired a credit card, you’re well on the way to building your credit. All you have to do at this point is regularly use the card—and make sure you do so responsibly.
The biggest part of using a credit card responsibly is to make all of your payments on time. This will improve your payment history on your credit report, which is by far the biggest factor that contributes to your FICO score and VantageScore.
If you have a spotless payment history, you’ll probably have a good credit score, but the reverse is also true: just one late payment can cause a major drop in your credit score and stain your credit report for up to 7 years. 3
Additionally, by making on-time payments, you’ll avoid penalties like late fees and increased interest rates.
How to make sure you always pay on time
To avoid missing payments, consider setting up phone reminders or automatic bill payments from a checking account so you don’t have to remember to transfer the funds yourself. Just make sure you have enough money in your account so that the payments go through.
It’s also a good idea to pay off your credit card in full each month so that you can avoid paying interest. (Most credit cards charge you for carrying a balance from one month to the next, but if you always pay your bill in full, you’ll never pay a cent of interest.)
3. Limit your spending on the credit card
In addition to your payment history, credit cards also contribute to your credit score through your credit utilization rate. Also known as your debt-to-credit ratio, this is how much of your credit limit you’re using.
All the major credit scoring models will reward you for spending relatively little on your credit cards because this shows that you’re in control of your finances.
While there’s no hard rule about what credit utilization rate you need to get a good credit score, lower is generally better. A common guideline is to aim for a credit utilization ratio below 30%, although under 10% is ideal. 4
This is another reason that it’s good to pay off your card as promptly as possible. If you make payments at frequent intervals, it will be much harder to rack up a high balance (and a correspondingly bad credit utilization rate).
4. Keep your credit account open
Closing your credit card account will hurt your credit score, so you should avoid doing so unless it’s absolutely necessary. This is because closing the account will lower the amount of available credit you have, which will increase your credit utilization ratio.
Additionally, even if you keep the account open, it may stop contributing to your credit score if you go long enough without using your credit card. That’s because when calculating your credit score, FICO doesn’t factor in “stale” accounts that have been inactive for the past 6 months (although VantageScore may). 5 6
How long will it take to build credit with a credit card?
Building and maintaining your credit score is a lifelong process, so you won’t see results right away. In fact, opening a credit card can hurt your credit, so the immediate effect might actually be negative.
However, if you use your card responsibly, you can probably expect to see some improvement in your score in six months to one year, although the exact timeline will depend on the details of your credit file.
Take a look at some of the best credit card options available for building credit.
Track your process by monitoring your credit
To motivate yourself, you can keep an eye on your progress by regularly checking your credit. This also means that if anything goes wrong (e.g., your card issuer reports a missed payment that could damage your credit), you’ll notice it right away.
How to check your credit report
You can monitor your credit by regularly getting a free copy of your credit report from AnnualCreditReport.com. AnnualCreditReport is a safe website that’s federally authorized to provide your credit reports.
You’re normally entitled to one copy of your report from all three credit bureaus (Experian, Equifax, and TransUnion) per year, but you can temporarily get one copy every week until the end of 2022, due to relaxed restrictions in response to the COVID-19 pandemic.
How to check your credit score
It’s also a good idea to keep an eye on your credit score itself. There are several places you can do this:
- Your credit card’s online portal: There’s a good chance that your new credit card will come with a credit score lookup service. You can check on your card issuer’s website. If they do offer your credit score, it will probably be your FICO 8 or FICO 9 score (two of the most popular scoring models).
- A credit monitoring service: There are many credit monitoring companies, such as CreditKarma, that will provide your score (often for free). If you check your score this way, you’ll probably see your VantageScore, which lenders are less likely to use than your FICO score. However, your VantageScore is probably enough if you’re just interested in tracking your credit-building progress.
- FICO or a credit bureau’s website: The credit bureaus that compile your credit reports may provide your score on their websites. For instance, you can get your Experian credit score for free. You can also monitor your score on FICO’s website, although their credit-monitoring service costs money.
Whatever method you pick, just keep an eye on your progress and make sure you continue to use your card responsibly. In a few months to a year, you’ll probably see a noticeable improvement in your score.
