How to Build Credit with a Credit Card
Ready for your first credit card? Building credit with a credit card can sound daunting, especially if you are applying for your first credit card. Read on to learn how to start building credit with a credit card, how to use a credit card wisely, and the best first credit cards for building credit.
What is a credit score?
Making purchases on a credit card and paying your bills on time increases your creditor’s confidence in you. Having a positive credit history ensures that you will be more likely to pay back your loans. When creditors feel confident in your credit history, your credit score improves. You also gain more opportunities for future lines of credit and loans. Your credit score is what lenders use to judge whether they should approve you for a loan.
Have you already built up a credit history and are wanting to learn more about credit scores? Check out our article on free credit report options and learn how to boost your credit score with 6 credit tips.
The Federal Reserve also has more information about how to improve your credit score.
How to Start Building Credit
- Open a Card, Make Purchases, and Pay On Time
- Open a Card and Leave It with No Balance
- Join Forces with Another Account Holder
How to Use a Credit Card Wisely
Best First Credit Cards for Building Credit
How to Start Building Credit
Opening a credit card is the easiest way to start building credit. There are several different approaches to building credit with a credit card.
1. Open a Card, Make Purchases, and Pay On Time
The first option is the easiest and perhaps the most common of the three.
The approach is simple:
- Apply for a credit card, preferably one with good benefits for people with low or no credit. Consider a secured credit card or a student credit card. We’ll cover those later.
- Once you’ve been approved, use the card to make purchases.
- Always pay your credit card bills on time.
2. Open a Card and Leave it with No Balance
Another option is to open a card and leave it with no balance. This option will help you build credit, although the process will be a bit slower than making purchases and paying them off on time.
Even if you don’t make purchases with your account, the credit bureaus will still report positive information towards your credit score if your account is current.
3. Join Forces with Another Account Holder
The third option is to join forces with someone who already has an account. This approach won’t build credit as quickly as making purchases on your own card, but it would be a good option for you if you’re too young to get your own credit card (under 18 years old) or if you’re having trouble applying for your own account.
To be a user on someone else’s account, you need to request authorization. When this authorization is approved, you’ll have a card connected to that person’s account and you’ll be able to make your own purchases within their credit limit. The account holder makes the payments for any bills accrued on the account, but the account information is attached to your credit report as well.
How to Use a Credit Card Wisely
1. Pay Your Bill on Time, Every Time
Building a good payment history–and thus a good credit score–involves paying your bills on time. This also will help you gain future loan approvals and credit limit increases. Failing to pay bills on time is one of the worst things you can do to your credit.
Paying the minimum amount required is a good option, but the best thing you can do to build credit responsibly is to pay in full whenever you can. Paying in full will help you save on interest. It will also help you ensure that you’re able to repay the amount that you are spending in credit.
2. Sign Up for Automatic Payments
You can set up automatic payments to ensure that you never miss a credit card payment. Automatic payments can be connected to your checking or savings account. This way, when you use the card to make purchases, you’ll know that the money you spend is going to come directly out of your account balance, albeit with more of a delay than if you used your debit card.
3. Use Less Than Your Limit
To build and improve credit the fastest, you should spend within an ideal range of your credit limit each month. In fact, the best credit utilization ratio for improving your score the fastest is 1%-10%. At any point in time, using 1%-10% of your credit limit will ensure that you use your credit card wisely.
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How much should I spend to build credit the fastest? Spend 1%–10% of your credit limit each month For example: If your credit card has a $1,000 limit, spending $10-$100 each month will help you build your credit score the fastest. |
While you’re making purchases and building up your credit history, you’ll want to be careful not to max out your limit. In order to build or improve your score, it is a good idea to spend less than 30% of your credit. Using more than 30% of your credit limit risks damaging your score.
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How can spending hurt my credit score? Spending over 30% of your credit limit each month will risk damaging your credit score. For example: If your credit score has a $1,000 limit, spending over $300 may cause damage to your credit score. |
Best First Credit Cards for Building Credit
If you are just learning how to build credit with a credit card, you may also be wondering what credit card is right for you. Different credit card accounts will meet different needs. If you are just starting to build your credit, you might want to consider secured credit cards or student credit cards.
1. Secured Credit Cards1
A secured credit card is a great way to start building or improving credit. When you start a secured credit card account, you make a cash deposit that is usually equal to the amount of your credit limit. For example, if you deposit $200, you’ll have a $200 credit limit.
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Benefits of Cal Coast’s Platinum Secured Mastercard
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2. Student Credit Cards1
Student credit cards are designed to help students build their credit. Like secured credit cards, they function just like regular credit cards. They have some added benefits, like lower credit limits. You may not even have to be a student to qualify for a student credit card.
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Benefits of Cal Coast’s Student Mastercard Credit Card:
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Get Expert Advice from a Cal Coast Financial Coach
If you'd like the personalized advice of a professional, you can schedule a one-on-one appointment with one of our Financial Coaches. Financial Coaching is free for Cal Coast members. Visit our membership and benefits page to learn more about the perks of becoming a member of Cal Coast Credit Union.
