The Best Type Of Credit Card To Build Credit

Posted on May 31, 2019
what credit card should i get

Building credit is important for your financial health and your future.

A strong credit score could improve your chances of obtaining favorable loan terms, including a low-interest rate and high borrowing limit. Employers even use your credit score to determine if you’ll be a responsible employee.

Whether you’ve just graduated from college and want to establish credit, plan to purchase your first home or want to qualify for a job promotion, you could use a credit card to improve your credit score.

Consider the options available to you as you find the best credit card to build credit.

Options For The Best Credit Card To Build Credit

A credit card can be a helpful tool as you boost your financial credibility.

Compare numerous credit cards as you choose the right type of your needs.

1. Store Credit Card

Many retailers offer branded credit cards you can use at their store and possibly at other locations. Some store credit cards include reward options, allowing you to earn free or discounted items.

You don’t need good credit to get a store credit card, making this option valuable even if you have no or little credit. Additionally, you can ask the store to report your credit history to the credit bureaus, which will help you build a credit history.

High-interest rates on unpaid balances are one common store credit card drawback, though, so commit to paying off the entire balance each month.

2. Secured Bank-Issued Credit Card

Your local bank or credit union may offer a secured credit card. With this option, you deposit a certain amount of money into an account, and you can only charge up to that amount.

The deposit limits on these accounts typically range from $200 to several thousand dollars. While you may be unable to make large purchases, you can use this option to improve your credit over time.

3. Prepaid Credit Card

Sometimes the best credit card to build credit is a prepaid one. Open this type of account to prove that you’re ready for the responsibility of a traditional credit card. Simply deposit money into the credit card account, then use your card to make purchases.

Review the fine print on prepaid credit card offers to ensure your purchase and payment activity is reported to the credit bureaus. Also, be aware of the fees associated with reloading and using a prepaid credit card.

4. Student Credit Card

If you’re a college student, consider a student credit card. It’s designed to help young borrowers build a credit history.

Most student credit cards include high-interest rates and low borrowing limits, so only apply for this type of credit card if you are confident that you can repay the full amount each month.

5. Authorized User

Ask someone with good credit to add you as an authorized user on their credit card. As an authorized user, you have no legal responsibility to pay the credit card bill. The charges you make to the card can be reported to the credit bureaus, though, which can improve your credit over time.

To maximize the helpfulness of this option, partner with a close relative or friend that has good credit. A partner’s poor credit behavior will hinder your efforts to build credit.

6. Cosign

A parent, relative, close friend, or other trusted person could cosign for a credit card with you. You both may make charges and hold equal responsibility to pay the bill. Payment details are also reported on both of your credit reports.

For some people, this is the best credit card to build credit, but only as long as both you and your co-signer pay off the balance on time each month. Then when you’re ready to open your own credit card, remove the cosigner’s name or close this account.

7. Guarantor

Ask a trusted person to be a guarantor on your credit card account to build your credit. The guarantor will be responsible to repay the charges if you don’t pay them on time, but a guarantor cannot make charges with the credit card.

Also, the bank that issues the card must pursue all available avenues of getting you to pay any outstanding debts before they pressure the guarantor to pay.

8. Unsecured Credit Card

Apply for an unsecured credit card through your bank or credit union. Also known as a traditional credit card, this piece of plastic allows you to build your creditworthiness despite your lack of credit.

This option also removes the need for a co-signer or guarantor and gives you direct responsibility for your financial decisions.

Tips For Using Credit Cards To Build Credit

After you choose the best credit card to build credit, use your card wisely.

Continue reading for tips to help you improve rather than damage your creditworthiness.

1. Pay your credit card bills on time

Set up text or email alerts and authorize automatic payments from your checking account to ensure you pay your bills on time even if you receive the bill late or lose it.

2. Pay off the full amount each month

Carrying a balance increases your debt and damages your credit history. Only charge what you can afford to pay off each month.

3. Limit open credit card accounts

One credit card is sufficient to build your credit. Open too many credit card accounts, and you boost your credit risk rather than your creditworthiness.

4. Choose a low credit limit

You’re more likely to pay your bills on time and in full each month and build strong credit when you keep your credit limit low.

5. Spend less than your credit limit

Your credit score will improve as you avoid maxing out your available credit. While your credit card limit may be $1,000, aim to spend 30% or less each month.

6. Review fees

Some credit cards charge application, annual, and balance transfer fees. Consider a no-fee credit card like the VISA platinum card as you build credit and practice wise financial habits.

Choosing The Best Credit Card To Build Credit

Your credit history is important for your financial health and your future, especially if you want to purchase a car or a house one day.

Choosing the best credit card to build credit is a smart move towards achieving your financial and life goals. Carefully weigh your options as you choose a card and invest in your future.

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