How to build credit with a credit card

How to build credit with a credit card
Building credit with a credit card requires time and a few good habits.JJFarquitectos/Getty

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  • Building good credit with a credit card requires spending less than your credit limit allows and promptly paying off the bill each month.
  • If you've never had a credit card or taken out a loan before, consider becoming an authorized user on a friend or family member's credit card or applying for a secured credit card.
  • Your credit card payment activity and credit utilization will be reported to the credit bureaus, which will each create a credit report in your name.
  • Your credit report documents your entire credit history and will determine your credit score, the three-digit number lenders use to evaluate your ability to pay back a loan.

Building good credit from scratch can seem intimidating, but all it really takes is time and smart habits.

There are a few ways to build credit, but you can start small by using a credit card. Here's how it works:

How to build credit with a credit card

1. Become an authorized user

One of the easiest ways to establish credit from nothing is to become an authorized user on your parents' or partner's credit card. An authorized user is basically an extension of the primary cardholder, but isn't responsible for paying the bill and doesn't have to undergo a credit check.

But as an authorized user, your credit report will track the credit card's payment and utilization history, so it's important to choose someone who is financially responsible.


2. Try a secured credit card

You may try a secured credit card to start building credit on your own. With a secured credit card, you make a cash deposit to a bank or financial institution to establish a line of credit and then use the card to make purchases up to that limit. When you pay the bill each month, the bank will report your payment activity to the three credit bureaus, Equifax, TransUnion, and Experian, which will each establish a credit report in your name.

If the bill ever goes unpaid, the bank can keep your deposit. If you pay on time consistently, you should eventually qualify for a non-secured card and may even be upgraded by your bank.

3. Apply for a credit card with good rewards

Once you've established some credit history, you're probably ready to apply for your own credit card. Any credit card worth having these days will come with a suite of benefits and rewards, whether it's bonus points, cash back on qualified purchases, or travel perks. Some of the top tier credit cards levy an annual fee as high as $450, but there are many great, no-fee credit cards to choose from.

You can apply for a credit card online and the bank will perform a hard inquiry on your credit report. It usually only takes a few minutes to get approved, unless the bank needs to verify your income.

4. Check your credit limit

When the bank approves you for a credit card, it will set a credit limit based on your income and other factors in your credit report. The amount of your total available credit limit that you spend each month becomes your credit utilization rate.


You want to aim for a credit utilization rate of 10% or less to maintain a good credit score. The more lines of credit you have, the easier it gets. If you consistently keep your spending below the limit and make on-time payments, the bank may automatically increase your limit. You can also call and request a credit limit increase.

5. Know your payment due date

Before you start swiping your credit card, you should know when your monthly payment is due. This will be listed on your online account and is the date that your full outstanding balance is due every month to avoid late fees.

6. Know your annual percentage rate (APR)

Every credit card has an APR, or annual percentage rate, which is the percentage of your outstanding balance you'll be charged for keeping a balance on the card past the payment due date.

The APR on a credit card depends in part on your credit history and can range from 17% to 26%, though some cards offer introductory APRs as low as 0% that last for a few months after opening the card. Some banks raise your APR if your payments are late.

Ideally, you shouldn't be concerned with the APR if you plan to make full and on-time payments on your credit card. But it's still smart to choose a credit card with a low APR in case you do end up carrying a balance at some point; high interest rates can quickly snowball your debt.


7. Use the card to make purchases

If you opened a rewards credit card, start using the card to make purchases that will earn you points, miles, or cash back.

8. Make a habit of checking your transaction history

When you're swiping a card rather than handing over cash, it can be easy to lose track of how much you've spent. Get in the habit of checking your transaction history once or twice a week to make sure you're not creeping too close to the credit limit.

9. Pay off the balance in full every month

Every month, you're responsible for paying off the full current balance on your account. If you don't pay your full balance on or before the due date, it will start accruing interest until it's paid, you'll get a late fee, and the credit bureaus will be notified of your missed payment.

If you only pay the "minimum payment" listed on your account by the due date, you will avoid the late fee, but the remaining balance will still start accruing interest.

10. Set up auto pay

If you're afraid you may forget to manually make your monthly payment, connect your credit card account with a checking account that will automatically pay your bill on the same date every month — just make sure there's enough money in the account to cover it.


11. Don't apply for more credit too soon

New credit inquiries show up on your credit report each time you apply for a new loan or credit card and temporarily bring down your score by a few points.

If you have too many inquiries in a short period of time, lenders may consider that a high risk and deny your application or give you a less-than-ideal interest rate. If you're new to establishing credit, it's best practice to space out your credit applications by at least six months.

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