How to build credit with a credit card
Using a credit card can be an effective way to build credit. But it’s crucial to develop responsible habits, such as making on-time payments and staying well below your credit limit.
Learn more about how you can start building your credit with a credit card.
What you’ll learn:
-
A credit card can be a helpful tool for building credit if it’s used responsibly.
-
There aren’t any shortcuts when it comes to building credit with a credit card.
-
Lenders look at how you manage debt over time before making lending decisions. They might check things like your credit scores, credit history, income and assets.
-
If you’re looking to establish or improve your credit scores, using a credit card responsibly could help you build credit.
Building credit with a credit card: 7 tips
No matter where you are in your financial journey, there are positive steps you can take to build credit:
1. Make on-time payments
Paying your bill on time shows responsible credit card use and may help you improve your credit. To help stay on track, you could consider signing up for automatic payments or electronic reminders.
Making late credit card payments could lead to late fees and interest rate increases. And if your late payments are reported to the credit bureaus, they could stay on your credit reports for years.
2. Use only the credit you need
Your credit scores may be affected by how much of your available credit you’re using. This is known as your credit utilization ratio. The Consumer Financial Protection Bureau (CFPB) recommends keeping your credit utilization ratio below 30%.
“Paying off your entire balance is best and keeps the ratio low, strengthening your credit scores,” the CFPB adds. Keeping a balance on your credit card could also mean that you’re spending more on the things you buy because you’re also paying interest.
A credit limit increase could also help you improve your credit utilization ratio as long as you don’t spend more as a result.
3. Pay off the balance in full each month
Following the CFPB’s advice and paying off your entire balance can also help you pay less in credit card interest. If you can’t pay your balance in full, the CFPB recommends paying as much as possible: “The higher the balance you carry from month to month, the more interest you pay.”
If you already have a card and feel like you’re struggling to keep up with payments, check out these tips to pay off credit card debt.
4. Limit new credit line applications
Credit applications typically trigger hard credit inquiries, which can decrease your credit scores in the short term. A new line of credit might also lower the average age of your credit history, another credit-scoring factor.
5. Keep tabs on your account, credit reports and credit scores
Checking your statements to monitor your account transactions can help you spot errors and potential fraud attempts. And monitoring your credit reports lets you see how your credit card activity impacts your credit scores. That’s important because lenders could use your credit scores to predict how likely you are to pay your debts on time.
You can get free copies of your credit reports from the three major credit bureaus at AnnualCreditReport.com. And with CreditWise from Capital One, you can access your credit report and credit score without affecting your scores. CreditWise is free for everyone. You don’t even have to be a Capital One cardholder to use it.
6. Round out your credit file
If you have thin credit, you could look into how to self-report to credit bureaus. If things like rent, utilities, cellphones and even streaming service payments are reported to credit bureaus, they can help prove financial responsibility. Payments for credit cards, mortgages and other installment loans could also help build credit if they’re made on time and reported to the credit bureaus.
7. Become an authorized user
Have a friend or family member who might be open to helping you build credit? You could ask them to add you as an authorized user on their credit card account.
Authorized users typically get their own card that they can use to make purchases. But they don’t need to apply. There’s typically no credit check, either.
It’s ultimately the primary cardholder’s responsibility to make the monthly payments. If the card issuer reports authorized users to credit bureaus, responsible use could help you boost your scores. But if either of you don’t use the card responsibly, it could negatively impact credit scores for you both.
Types of credit cards that help build credit
Whether you’re building credit with your first card or looking to improve your scores, you may have options. Many credit card issuers, including Capital One, offer credit cards for people with less-than-perfect credit:
Secured credit cards
Secured credit cards are like any other credit card, except that they typically have a lower credit limit and require a refundable security deposit. The deposit acts as collateral, similar to a security deposit for an apartment rental. The deposit is usually refundable, like with the Capital One Platinum Secured card.
Secured cards can help you build credit so that you can eventually upgrade to an unsecured card. The Capital One Platinum Mastercard®, which is for people with fair credit, is one example. The card could help build credit if it’s used responsibly by doing things like paying statements on time every month. Plus, there’s no annual fee. View important rates and disclosures.
Check with your credit card issuer to understand what’s possible and how graduating to an unsecured card might work.
Student credit cards
Student credit cards are credit cards intended for college students and recent graduates. They usually have features tailored to a student’s lifestyle. They might include the chance to earn rewards on purchases like entertainment, streaming services, meal delivery services or travel.
With a student card, approval requirements may be more relaxed since applicants typically haven’t started to build credit yet.
How to build credit with a credit card FAQ
Check out these answers to frequently asked questions about building credit with a credit card:
How much should I pay on my credit card to increase my credit scores?
According to the CFPB, you should pay off your balance in full each month, if possible. When that’s not an option, the CFPB advises making more than the minimum payment.
What happens if you spend no money on a credit card?
If you’re not using your credit card, your issuer might eventually lower your credit limit or close your account due to inactivity. But the CFPB says your credit card issuer must typically give you notice and time to adjust.
“This notice should either provide specific reasons for the action taken or allow you to request a statement of specific reasons,” the agency says. “These notices discourage discrimination and they help you learn the reasons for the decisions.”
What’s the fastest way to raise your credit score?
Raising your credit score typically takes time and patience. But if you put good habits into action, like paying your bills on time and keeping your credit utilization low, you could eventually see improvement.
Key takeaways: How to use a credit card to build credit
Whether you’re thinking about your first credit card or working to improve your credit, remember that building credit takes time and good financial habits.
Using a credit card responsibly is one way you can build credit. If you’re interested, you could compare Capital One credit cards and check whether you’re pre-approved before you apply. It’s quick, and it won’t hurt your credit scores.
