How To Build Credit With A Credit Card

Good credit is essential for most consumers. A good credit rating and history can increase your access to favorable mortgage and car loan terms as well as improve your employment opportunities.

Many factors affect your credit score, including credit usage. For this reason, consider how to build credit with a credit card.

Tips For How To Build Credit With A Credit Card

With the right card and responsible credit card usage habits, you can build credit and invest in your future. Continue reading for tips on how to build credit with a credit card.

Select The Right Credit Card

Financial instiutions, gas stations, and department stores issue several types of credit cards that could build your credit. All credit cards are not created equal, though.

Do your homework to select the right card to build your credit. While the discounts are attractive, gas and store cards generally charge high interest rates. Additionally, reward cards may limit where you can spend points.

Be sure to compare the application fee, interest rate, credit limit, late fees, repayment terms, and annual fee, too, because these details affect the overall cost of credit card ownership.

Consider alternative cards as well. A secured credit card requires a deposit and limits the amount you can charge. You could also become an authorized user with a trusted family member or friend who has good credit and is committed to repaying the balance on time and in full.

Related:

• What to Look For When Applying for a Credit Card?

Choose One Credit Card

You might think that if one credit card can build your credit then surely two or three will improve your credit even faster. Free sign-up gifts like food, clothing, or reward points are attractive and may entice you to open several credit card accounts.

Actually, opening multiple credit card accounts can harm your credit. Too many open accounts signal that you’re in financial trouble and may lead to missed or late payments. Choose only one credit card as you build your credit carefully and methodically.

Ask For A Low Credit Limit

A high credit limit allows you to charge more purchases. That high limit also means you’ll have more money to repay at the end of the month, though. If you don’t pay the balance in full, your credit score will suffer.

Apply only for a credit card with a low spending limit. The maximum amount you can charge should be a figure you can easily repay in full each month. Request that the financial institution does not raise your credit limit automatically. These habits help you establish wise habits and build credit.

Utilize Less Credit

The amount of credit you use factors heavily into your credit score. Utilize too much of your available credit, and your score will decrease.

Ideally, you’ll want to maintain a low credit card balance. Try to charge only 30% of your available credit each month.

To find your credit utilization rate or credit limit, review your credit card agreement or contact the issuing financial institution. Think about making bi-monthly payments, too, to keep your credit utilization rate low.

Pay Off The Balance In Full

Carry a balance on your credit card each month, and your score will suffer. You’ll also owe more next month thanks to interest charges.

Reduce your debt load and improve your credit when you pay the complete balance every month.

To achieve this goal, you could:

• Treat your credit card like a debit card and only buy what you have the cash to cover.
• Utilize a budget app like Mint or You Need a Budget that tracks your spending.
• Create a list of items you need and purchase only those items as you curb impulse spending.
• Make multiple credit card payments each month to ensure you pay your bill in full.

With these tips, you can build your credit and manage your credit card debt.

Make On-Time Payments

Making late payments or missing payment deadlines reveals that you might be in financial trouble. Your credit score will decrease every time you miss a payment deadline, too, and the late payment or interest charges will increase your debt load.

Make a note on your calendar, sign up for text or email alerts regarding payment dates and set up automatic payments to ensure you make on-time payments. By establishing an on-time payment history, your credit card becomes an asset to your credit score.

Know Your Spending Habits

After you choose a credit-building credit card, be honest with yourself about your spending habits. You may need to leave your credit card at home sometimes or budget for big-ticket items rather than automatically charging them.

Keep Accounts Open

As you receive attractive credit card offers with lower interest rates or higher credit limits, you may decide to apply for a new card and close your original account. Your good intentions could backfire.

Canceling credit card accounts negatively affects your credit. This action reduces your predictability to lenders, hurts your credit utilization rate and lowers the average age of your accounts.

Knowing how to build credit with a credit card involves choosing a single card and keeping the account open even after you pay the balance.

Check Your Credit Scores & Reports

To gain maximize leverage from your credit-building credit card, you’ll want to keep track of how it affects your credit score. That means you’ll need to learn how to check your credit score and credit reports.

First, check your credit card statement. Some companies include your credit score on your monthly statement.

Second, look at your account details on the credit card website. You may find your credit score there.

Finally, visit AnnualCreditReport.com and request your credit reports from each of the three major credit card reporting agencies. Carefully review the reports for accuracy. You can dispute any errors to prevent them from lowering your credit score.

Understanding How To Build Credit With A Credit Card

Good credit opens doors for you to make important purchases and land a good job in the future.

Start now to build your credit with the right credit card. These tips help you evaluate your credit card options, choose the right one for your needs and responsibly leverage it to build your credit.

The Best Type of Credit Card to Build Credit