How to Use a Credit Card to Build Credit? A Useful Guide in 2023
Building your credit is very important as it can unlock a range of borrowing options that are affordable in the future and using a credit card to build credit can be the smartest choice. Having a valid credit account not only helps you pay for the things you need but also can play an important role in improving your creditworthiness.
A credit score is the first thing every financial institution looks into if you need any kind of loan. So, maintain good credit habits and know how to handle your credit card to build credit strategically and responsibly.
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Here are some of the simple and common ways you can build your credit using a credit card:
- Make on-time payments
- Use credit card on a budget
- Lower the utilization ratio of the card
- Don’t close your credit account
- Use limited credit accounts
- Regularly track your credit limit
- Try to not use your credit card
How to use a credit card to build credit
1. Make on-time payments
The first and foremost thing which directly affects your statement credit is your credit history since it makes up 35% of your FICO score, which is what 90% of the top card issuer use. So maintain paying your dues on time, which can greatly affect your credit reports in a positive way.
Making your payments on time not only helps you maintain a high credit score but also improves the trust of lenders by making you a responsible borrower. You can enjoy benefits like a lower security deposit, free from annual fees or cash advance fees with secured credit cards or normal credit cards.
On the other hand, it takes seven years to recover your credit scores from late payments.
2. Use credit card on a budget
You can start building your credit score and positive credit history by getting your first credit card , but it is a lot of responsibility to use your card wisely. You will be easily tempted to use credit to buy things you cannot afford since having access to a credit card can make it feel like free money, but that can slowly start to accumulate as debt.
You are the only one who has total control over how much you spend using your credit card. This way you can use your credit card to build credit easily.
You can follow these tips to control and manage your credit cards:
- Start using your credit limit just like how you use your debit card. Create a budget you can afford to spend for every category like groceries, retail, dining, etc., and then use your card alongside the budget planned.
- Another best way to use a credit card to build credit is by using it to pay bills rather than as variable spending. Set up your card for auto pay for selected bills, so that the bill amount gets auto-charged each month and eliminates the risk of you forgetting to pay your bills.
- So paying your credit balance in full every month can visibly build your credit and makes you a pro in using your card. You can pay the minimum on time each month to maintain a good credit history, but paying it off fully has many benefits like avoiding interest, avoiding falling into debt, and also keeping the utilization ratio of your credit low.
3. Lower the utilization ratio of credit cards
The credit usage ratio measures how much of your available credit you are actually using. If you divide your debt by the credit card’s limit and multiply the result by 100, you will get the rate of your credit usage.
Utilization rates are calculated by credit scoring models for each individual card as well as for all of them if and when you receive more.
The lower you spend, the lower your credit ratio should be. Keep your ratio below 30% at all times, and for the best results, below 10%. Although increasing your credit limit can be beneficial, paying off your credit card due amount each month is the best way to use it.
4. Don’t close your credit account
You might be tempted to close an account if you aren’t using a particular credit account much. But if you want to a credit card to build credit, try to keep your credit accounts open.
Your credit score is influenced by your history of appropriate credit management, which includes the average age of your credit accounts. If you close your oldest credit account, your account’s average age will be lower.
5. Use limited credit accounts
The more credit accounts you open, the more your credit report will be inquired which is considered risky among lenders. And avoid opening multiple credit accounts in a short period of time or the credit accounts’ average age will be affected.
Your credit statement will be inquired about every time you open a new credit account which can directly affect your credit score. So make sure to not use it till the credit line
So, once you open a new credit account try to stick with the same one for a period of time. If you feel like you need an upgrade without a security deposit or refundable security deposit or no annual fee or want cards that have better benefits, consider all the best cards and choose one wisely.
6. Regularly track your credit limit
Monitoring your credit report and score to make sure everything is accurate and that your good credit habits are improving your score is a crucial part of responsible credit management. To find out where you stand, you may check your credit scores for free at Experian.
Every time new information is added to your report, you’ll receive an alert. You can monitor your development with the aid of that. A good strategy to strengthen your defenses is to detect any unknown behavior that appears on your credit history early and dispute it. This can be a symptom of identity theft, as can any other unrecognized activity.
7. Try to not use your credit cards
It does not mean you should not use your card at all but have credit usage at a minimum by reducing the usage of your card.
Try to not use your credit account often and pay the balances on time each month. You can build your credit easily if you have a platinum-secured credit card or just a secured credit card but rarely use it and also pay the amount properly each month.
Frequently Asked Questions
1. How do I use my credit card to build credit?
If you have a credit account and own a card and want to build your credit through a credit card, you can pay off your card debt as a whole and pay your monthly debt on time. Your reports will be sent to the credit bureau by your card company. You also don’t have to pay interest and since 35% of your FICO score is based on your credit statement, paying on time will definitely help.
2. Can a credit card help building credit?
An excellent credit score required can be built easily by using a credit card responsibly. Making payments on time, paying off regularly, by balance transfers, and spending a small and limited portion on your credit limit can all make bigger impacts on increasing your credit.
3. What is the fastest way to build my credit?
Paying off your credit card’s down balances and paying on time are the two main important factors to build your credit at a fast and steady pace. You can get some benefits like a higher credit line, lower or no security deposit, no annual fee, foreign transaction fees, or cash advance fee. You can also earn cash with some type of card. there are no foreign transaction fees with cards like a platinum-secured credit card.
Whether this is the first time you are getting a secured credit card or unsecured credit cards, or you have been using them for a long time, using credit card to build credit can be the easiest and safest option.
With perfect planning and credit management, you can not only build your credit easily but also maintain a good statement of credit, which will be immensely helpful for you to get loans and financial help in the future with advantages like no annual fee and higher credit line. Follow these methods mentioned above to improve your credit score and avoid getting into debt by over usage of credit cards.
If you have any doubts or need help in getting your credit score in good shape, visit The Credit Pros for professional assistance and credit repair.