How to Build Credit with a Credit Card

Building credit with a credit card can help improve both your credit score and history; it is important to use your credit card wisely. Credit cards are simple and convenient when paying for what you need, and the spending habits required to build credit are straightforward. Even if you have limited credit history or credit challenges, a credit card might offer a path to better credit.  

How Does a Credit Card Affect Your Credit?  

When you open a credit card, that account gets reported to the three major credit bureaus: Equifax, Experian, and TransUnion. As time goes on, credit card companies also report account activity including payments.  

The credit bureaus will include this information in your credit report, which is then used to calculate your credit score when a third party checks your credit.  

Credit cards affect the following factors that help determine your credit score:

• ‍Payment history. Payment history is the most essential element in your credit report that makes up your credit score. Your credit reports will reflect the payment history for your credit card accounts, indicating whether you tend to make your payments on time and if you have any overdue payments on your record.  ‍
• Age of accounts. Credit scoring models look at the age of your oldest credit account, the age of your newest credit account, and the average age of all your accounts. Generally, the longer your credit history, the better it is for your credit score. Credit cards directly contribute to this factor.
• Credit utilization. Your credit utilization rate is the percentage of available credit on your revolving credit accounts that you are currently using. For example, a credit card with a $200 balance and a $1,000 credit limit has a 20% utilization rate. Credit scoring models tend to reward borrowers who have lower utilization.
• ‍Credit mix. Your credit score is also affected by the mix of credit accounts that you have. If you have a mix of installment debts (such as student loans or mortgages) and revolving accounts (such as credit cards or home equity lines of credit), it can benefit your credit score. Adding a credit card into the mix can help diversify.

How to Use a Credit Card to Build Credit

Here’s how to use your credit card to establish credit history and build a stronger credit score:  

• Pay your bills on time. Since payment history is so important for your credit score, you should strive to make your credit card payments by the due date every month. Over time, this will help positively contribute to your credit score. On the flipside, payments over 30 months (about 2 and a half years) past due can appear on your credit report and damage your credit score.  ‍
• Keep your account open. Keeping your credit card accounts open, even if you do not use them that often, can help contribute to a longer credit history and increase the age of your accounts. One exception: if you cannot manage your card responsibly and you have debts piling up, it might be better to close the account.  ‍
• Maintain a low balance. If your balances are too high, it can make you appear overextended by debt, which could drag down your credit score. It is commonly recommended to keep your credit card balances below 30% of the available credit limit; according to Experian, borrowers with the highest credit scores tend to keep their balances below 10%.  

What to Do If You Cannot Qualify for a Credit Card

If you have limited credit history, it can be difficult to qualify for a credit card in the first place. Luckily, you still have some options to start building credit:  

• Get a secured credit card. Some credit card companies offer secured credit cards, which require a security deposit to open. They are easier to qualify for than traditional cards, but they work the same, and account activity gets reported to the credit bureaus and contributes to your credit score.  ‍
• Become an authorized user. You can ask a trusted friend or family member to add you to their credit card as an authorized user, allowing you to build your credit by piggybacking on their account (you do not even need to use the card yourself). But if the primary cardholder racks up a high balance or stops making payments, your credit could end up taking a major hit.  ‍
• Get a retail credit card. Some stores offer retail credit cards that are easier to qualify for than traditional credit cards and may even help you earn rewards. Store credit cards can help you build credit, but they often come with higher interest rates, lower credit limits, and might only be accepted at a single retailer.‍
• Pay your other debts on time. If you have other debts, such as a student loan, car loan, or mortgage, continue making your payments on time. This will naturally build credit history and help your credit score, even if you do not have a credit card account.  ‍
• Report rent and utility bill payments. Many credit-building services now offer rent and utility bill reporting, allowing you to establish payment history by paying your rent or bills on time.  ‍
• Get a credit-building debit card. Some banks and financial companies offer debit cards that help you build credit in a roundabout way. The card issuer will cover the cost of purchases you make on your debit card up front, then pull funds from your bank account to “repay” the purchase. The experience is just like using a regular debit card, but the payment activity will show up on your credit reports and contribute to your credit score. Keep in mind; these cards often include fees that are not associated with basic credit cards.
  

How CreditBuilderIQ Can Help You Build Credit

CreditBuilderIQ can partner with you on your credit-building journey, and help you reach your credit goals using several key benefits:  

• Credit reports and credit scores. You receive regular copies of your credit reports and credit scores, so you can track your progress over time and see how you are progressing toward your goals.  ‍
• Dispute assistance. Inaccurate information in your credit report can drag down your credit score. CreditBuilderIQ can help you dispute inaccurate information on your credit report and track responses from the credit bureaus.  ‍
• Credit report review. We review your credit report and flag items that could be negatively affecting your credit score, so that you can identify areas for improvement or find items that need disputing.  ‍
• Rent and utility bill payment reporting. With our rent and utility reporting service, you get credit for the other bills you pay on time, including your rent and utility bills. This can help you build credit by paying the bills you would already be paying anyway.  
  

Building Credit with a Credit Card FAQs

Common questions revolving around building credit with a credit card:

Can I build a credit score without a credit card?

Yes, it is possible to build a credit score without having a credit card, but the process may take longer. Other types of accounts, such as student loans, auto loans, or mortgages, can help establish a payment history if they are paid on time.  

Does paying rent build credit?

Paying rent can help you build credit if your rent payments are reported to the credit bureaus. Rent payments are not automatically included in credit reports, but there are several credit-building services, such as CreditBuilderIQ, that allow you to report on-time rent and utility payments.  

When these payments are reported, they can improve your payment history and positively affect your credit score.

What is the biggest killer of credit scores?

The most significant factor that affects credit scores is late or missed payments. Payment history is the most critical element of your credit score, and payments that are more than 30 days overdue can remain on your credit report for several years. Additionally, high credit card balances and maxed-out cards can severely harm your score, especially when combined with missed payments.

Take the Next Step Toward Better Credit

Building credit takes time and effort, and a credit card offers an effective way to make gradual progress. By making your payments on time, maintaining low balances, and keeping older accounts open, you can use your credit card to help build credit history and increase your credit score.  

Even if you are just starting out or working on improving your credit, options like secured credit cards or authorized user status can help you progress toward your goals.  

CreditBuilderIQ can help you remove the guesswork from building credit. Our solution provides credit reports and credit scores, helps with credit report disputes, and offers tools like rent and utility payment reporting that actively build credit.

Sign up with CreditBuilderIQ today to partner with a credit industry expert and increase your financial security.