How to Build Your Credit With Credit Cards

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Last updated: 07/03/2020
How to Build Your Credit With Credit Cards

The Effect of Poor Credit

As you probably know, a low FICO score causes all kinds of problems. If you don’t follow the terms outlined by the credit card issuer, you’ll pay extra fees and damage your credit. The worst of all are missed or late payments.

The goal of using credit cards to build your credit is to bring your score to at least 700. However, a FICO score above 800 is what gives you more buying power as well as loans with low interest and excellent terms.

Tips for Using Credit Cards to Improve Credit

If lenders keep denying your requests for a loan or if they offer you the money you need but at a high interest rate, you should consider using credit cards as a way of building your credit. With the information provided here, you’ll quickly be on your way to improving your FICO rating.

Get a Secured Credit Card

Apply for a secured credit card. With this, you’ll have to make a deposit. Every time you purchase something or pay a bill, the money is deducted from the available balance. The best cards usually require a minimum of $200, although some are more lenient. As long as you meet the criteria for maintaining a predetermined balance, you’ll begin to see an increase in your credit score.

Make On-Time Payments

Whether you use a secured or unsecured card, one of the best ways to build your credit is by paying on time. In the eyes of creditors, this shows you handle money responsibly. Eventually, if you need to secure a loan, lenders will take your on-time payment history into account.

Diligently paying according to the agreement with the company that issued the card gives lenders more confidence that you would pay their loan on time as well. Even if you only make the minimum payment allowed, never fail to pay when the bill comes due. Although you’ll have a grace period, typically 21 days, don’t wait to make your payment but pay the bill immediately upon receiving it.

To help you make your payments on time each month, you might want to set up an automatic deduction. You can do this with the card company by providing your bank or credit union information. If you have a busy schedule or tend to forget things, this is a real life-saver.

Use Your Credit Card

A common mistake that people make isn’t using credit cards. Putting them away in a drawer doesn’t hurt your score, but it also doesn’t help. Instead, spend between 1% and 30% of your credit line each month. If possible, pay the balance in full. Otherwise, make the minimum payment. That alone will make a substantial difference in building your credit.

As an example, if you pay $800 in rent, use your credit card. As soon as the bill arrives in the mail, pay it off. Not only will that help build your credit, but you’ll also avoid any fees. Ultimately, it would cost you nothing to use the card for this type of expenditure.

Have Non-Use Cards

As mentioned, having a credit card that you don’t use is another way to build your credit. Although this will take longer than if you spent money each month and paid the balance in full, it’ll still help. The three main credit bureaus even report on credit cards you stashed away. With the account in a “current” status, your FICO score will slowly improve.

Be an Authorized User

You’re never too young to worry about credit. If you’re under the age of 18, have your parents add you as an authorized user on their account. Of course, the key is they must pay on time. However, as long as they adhere to the issuer’s requirements, you have the opportunity to build your credit right along with theirs.

Select a Card Carefully

Some people who struggle with bad credit secure the first credit card they can. Unfortunately, not all cards are worth having. It’s important that you compare the interest rate and terms among several top-rated cards and then make your selection. Keep in mind that most of the big credit card companies have cards specifically for people with less-than-perfect credit.

Pay in Full

While you might find yourself in a position of only being able to pay the minimum amount due each month, pay the balance off in full as often as you can. This won’t have any impact on the interest, but it will keep your account in good standing.

Avoid Hitting the Maximum Credit Line

With a credit card that has a $5,000 limit, you might feel tempted to spend freely. However, if you want to build your credit using credit cards, you have to show discipline with spending. Never use the maximum limit on your card. Instead, charging between 1% and 30% is the best way to boost your FICO score.

Consider Debt Consolidation

If you currently have credit cards with high interest, consider consolidating them on a new card with a 0% introductory period. With that, you have anywhere from 6 to 12 months to pay the balance down without interest. Make sure the new credit card has a lower interest rate, allowing you to make the payments on time while paying the balance off early.

Check Your Credit Report

Since the reporting agencies make frequent updates, it’s essential that you check your credit score regularly. Visit the websites of TransUnion, Experian and Equifax monthly. At no charge, you can look at your reports to see if anything changed causing your credit score to decrease. If you identify something, take quick action to correct it.

Top Credit Card Choices

If you have less-than-perfect credit and want to improve your FICO score, consider the following cards:

  • Citi Secured Mastercard – with this card, you pay no annual fee and pay a 24.74% APR. There’s a $200 deposit required, but this credit card builds credit quickly if you make your payments on time
  • Capital One Secured Mastercard – this credit card is also great for building credit. While there’s no annual fee, you do have to make a $200 initial deposit. However, you can then make smaller deposits based on your creditworthiness. The variable interest on this card is 26.99%
  • Green Dot Primor Visa – with available credit lines between $200 and $5,000, a low fixed 9.99% interest, and no minimum credit score required, this credit cards ranks among the best
  • Credit One Bank Platinum Visa – not only does this credit card work great for rebuilding credit, but it also has a cash back rewards system. Other features include $0 fraud liability, easy qualification, and your choice of monthly due dates
  • OpenSky Secured Visa – you can apply for this credit card without going through a credit check. It also has a low 19.64% APR

The Bottom Line

Just as it took time for your credit score to decrease, it’ll take a little work and time to increase it. However, if you follow the tips provided, you’ll begin to see improvements in a relatively short amount of time. Once you build your credit, you want to do everything possible to keep it positive.
Finance Guru

Finance Guru