Using a credit card responsibly is one of the best ways to build credit history. You should pay on time, every time, and spend only a small portion of your credit limit. With that routine, you can generate an excellent credit score.
We’ll delve into how building credit with a credit card works, as well as consider how you can get your first credit card or piggyback off a parent’s or partner’s card if you’re not ready to manage a credit card of your own just yet.
You build credit through responsible management of a credit product, like a credit card or a loan. The lender will report your behavior to the three major consumer credit bureaus — Equifax, Experian and TransUnion — which each maintain a credit report with your history. While your credit reports don’t contain your credit score, your score is generated from information in your reports. Here are five tips to build credit with a credit card:
Paying on time is the most important factor in building good credit. Payment history makes up 35% of your FICO Score (the credit scoring model typically used by lenders) and 41% of your VantageScore.
We always recommend paying off your credit card in full, as doing so typically allows you to avoid interest charges via a grace period. But if you can’t pay off the full balance, make at least the minimum monthly payment due — that will prevent the issuer from reporting a late payment to the credit bureaus.
If you miss a due date, make the payment as quickly as possible. Issuers generally don’t report you as late to the bureaus until you’re 30 or sometimes even 60 days past due, so you can protect your score by paying promptly.It’s a good rule of thumb to keep your credit utilization at 30% or lower. When you get close to maxing out your card, issuers might take that as a sign you’re at risk of being unable to pay back what you’re borrowing.
Utilization, or utilization ratio, is a fancy term for how much of your credit limit you’re using. For example, if you’re carrying a $150 balance on a credit card with a $500 credit limit, that’s 30% utilization.
Utilization is calculated for both each individual card and across all your credit cards as a whole. For example, carrying $150 on a card with a $500 limit and $600 on a card with a $1,000 limit would be 50% overall utilization.
You should be careful before applying for new credit cards, and keep a limit on the number of new accounts that you open.
Length of credit history makes up 15% of your FICO Score. Part of this is the average age of your accounts, which goes down every time you open a new one. Plus, when you apply for new credit, that generates a hard inquiry — which could knock your credit score down about five to 10 points.
Applying for new credit judiciously will allow you to maintain a longer average age of accounts while limiting the number of inquiries on your credit reports. This will also help you avoid sending up a flag to potential lenders: Applying for new credit too often can indicate to lenders that you’re desperate, which makes you a risky borrower.
While you’ll want to avoid spending more on your new account than you can afford to pay off, you should make regular purchases on your credit card.
Issuers like to see you’re using your credit card, not leaving it dormant. Plus, the “length of credit history” factor in your FICO Score takes into consideration how long it has been since you’ve used specific accounts.
You don’t have to spend a lot on your credit card to build credit. One way to build credit while keeping your balance under control is to charge a small, recurring transaction to your credit card, like a monthly streaming subscription — then, set up autopay so you never miss a payment. Even if you tuck the card away, those monthly transactions and on-time payments should help you on your journey to a good credit score.
Another way to lower your credit utilization is to increase your credit limit. A higher credit limit gives you more flexibility to spend without dramatically increasing your utilization ratio.
It may not be possible to boost your credit limit right away. New cardholders usually start with a low credit limit — especially with a secured card, where your deposit determines your limit. Think of this step as a long-term goal, rather than an immediate one.
With time and responsible behavior, you can likely increase your credit limit. Some issuers of secured cards offer the chance to get your deposit back and graduate to an unsecured card. And, typically, you can periodically request a higher credit limit with an unsecured card. You may be able to do this in your online account or by calling the customer service number on the back of your card.
It’s important to select the right credit card to apply for when you have limited credit history or perhaps no credit at all. While many of the credit cards with the most lucrative rewards require good to excellent credit, there are cards that are more friendly to people new to credit — including secured cards, student cards and store cards.
If you have a poor credit score, or no credit history at all, a secured credit card is probably a good choice. It’s “secured” because you’ll need to submit a security deposit to the issuer in the amount of your desired credit limit. This protects the issuer if you default, so secured cards are usually accessible even with limited or bad credit.
One secured card that stands out is the Discover it® Secured Credit Card. A deposit between $200 and $2,500 is required, the annual fee is $0 and the card is accessible to consumers with limited / poor credit.
Plus, it earns cash back in useful categories: Cardholders 2% cash back at Gas Stations and Restaurants on up to $1,000 in combined purchases each quarter. 1% unlimited cash back on all other purchases - automatically
However, this card’s APR is high, at 27.74% Variable APR.
If you’re a college student, there are credit cards specifically designed to help you build credit history.
One student card that stands out is the Capital One SavorOne Student Cash Rewards Credit Card. No deposit is required, the annual fee is $0 and the card is accessible to consumers with limited / fair credit.
Notably, this card comes with a generous cash back program. Cardholders earn 3% Cash Back on dining, entertainment, popular streaming services and at grocery stores (excluding superstores like Walmart® and Target®); 5% Cash Back on hotels and rental cars booked through Capital One Travel (terms apply); 8% Cash Back on Capital One Entertainment purchases; 1% Cash Back on all other purchases.
Still, it comes with a potentially high APR: 19.99% - 29.99% (variable).
If you’ve ever been asked when checking out at a store if you want to apply for that brand’s credit card, or if you’ve been offered the chance to start a credit card application during your Amazon checkout process, you’re already familiar with store credit cards. The good news is that store cards can help build credit, and often have less stringent requirements than some other credit cards. The bad news, however, is that they often come with rewards programs that seem designed to get you to spend more than you otherwise would at the store, as well as sky-high interest rates.
One store card that stands out is the Target Circle™ Card. It doesn’t require a deposit, the annual fee is $0 and the card is available to consumers with good credit. And if you shop at Target even occasionally, this card can save you money — cardholders get 5% off every day at Target and Target.com. Earn 2% on dining and gas purchases and 1% everywhere else outside of Target, applied when you check out.
The APR is high at 29.95%.
The information related to Target Circle™ Card has been independently collected by LendingTree and has not been reviewed or provided by the issuer of this card prior to publication.
If you can’t qualify for your own credit card (or just don’t want one), but you have a family member or close friend who manages their finances responsibly, you might consider asking to be added to one of their cards as an authorized user.
Becoming an authorized user can quickly boost your credit score. With many cards, balances and payment history get added to the credit reports of both the primary cardholder and the authorized user. That means if your family member or friend is using the card, you’re essentially “borrowing” their history with that account — even if you never use the card yourself.
On the downside, the primary cardholder is ultimately responsible for any credit card charges you do make. To avoid conflict with family or friends, ensure you’ve worked out the details of how to pay back any purchases you make. You can even agree that the primary cardholder will keep hold of the physical card the issuer sends you, to avoid any temptation to overspend on the account.
After a year or so of being an authorized user, if you feel ready to take the next step, you may be able to qualify for a credit card of your own. In that case, review our recommendations for the best credit cards for beginners.
Not all credit cards report information for authorized users. If you’re unsure, ask the primary cardholder to call the number on the back of their card and check with the issuer. It won’t help you build credit if you’re added as an authorized user, but the issuer isn’t providing the spending and payment activity to your credit reports.No, you don’t need to carry a balance on your credit card to build credit history. As long as you’re using your card, and your issuer is reporting spending and payment activity to the credit bureaus, you’ll build credit.
We recommend always paying your card off in full rather than paying a balance — when you roll a balance over from month to month, you’ll incur interest charges unless you’re in a 0% introductory APR period.
Yes, as long as the issuer reports activity to the credit bureaus, using a store credit card will build credit history.
If you have a poor credit score, we recommend applying for a secured credit card, which requires you to submit a security deposit to the issuer — usually in the amount of your desired credit limit, with minimums often around $200.
The deposit protects the issuer in case you don’t pay back what you charge to the card, so secured cards are typically more accessible to people with bad credit than unsecured cards (meaning cards which don’t require a deposit).
One good way to keep an eye on your progress building credit is to check your credit score monthly. You can do this with a LendingTree Spring account— and many issuers provide your credit score for free as well.
In addition, federal law guarantees that each of the three credit bureaus (Equifax, Experian and TransUnion) must provide you one free copy of your credit report per year. You can get these reports from annualcreditreport.com. And, during the coronavirus pandemic, the bureaus have been providing free reports on a weekly basis.
No, prepaid cards do not build credit history. With a prepaid card, you’re loading funds onto the card, then spending what you’ve loaded. By contrast, with a credit card, you’re borrowing money from the issuer and then repaying it.
Yes, it’s possible to build credit without a credit card, though using a credit card responsibly is one way to build credit relatively quickly. Here are a few methods:
If you’re concerned a credit card will lead to the temptation to overspend, consider putting a small, recurring charge on your card, setting up autopay and then locking the card away. That way, you won’t run the risk of accruing a large balance — but you’ll still get the benefit of monthly spending and payments being reported to the bureaus.
For Capital One products listed on this page, some of the above benefits are provided by Visa® or Mastercard® and may vary by product. See the respective Guide to Benefits for details, as terms and exclusions apply
For Capital One products listed on this page, some of the benefits may be provided by Visa® or Mastercard® and may vary by product. See the respective Guide to Benefits for details, as terms and exclusions apply.
The information related to the Discover it® Secured Credit Card, Capital One SavorOne Student Cash Rewards Credit Card and Target Circle™ Card has been collected by LendingTree and has not been reviewed or provided by the issuer of this card prior to publication. Terms apply.
The content above is not provided by any issuer. Any opinions expressed are those of LendingTree alone and have not been reviewed, approved, or otherwise endorsed by any issuer. The offers and/or promotions mentioned above may have changed, expired, or are no longer available. Check the issuer's website for more details.
