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How to use credit cards to build credit

How to use credit cards to build credit
October 06, 2020

By Katie Levene

We all want to look at our personal finances and feel like we’re rocking it. At the very least, we want to feel like we’re in control of our finances. One good way to set yourself up for financial success is to be intentional about building good credit for the long term.

Whether you just got approved for your first credit card or you’ve had multiple cards for many years, it’s important to know how to use credit cards to build credit. We’re going to keep it simple with five easy steps to remember. This way you can focus your efforts and see long-lasting improvement in your credit score.

How can I build credit with a credit card?

There are five key steps you should take to use credit cards to build credit.

  1. Pay your bill on time
  2. Keep your balance low on your card, using less than 30% of your credit limit
  3. Keep your credit card open and use it
  4. Don't apply for too many credit cards
  5. Monitor your credit report for inaccuracies

Pay your bill on time

The best way to improve your credit score is to pay your bill on time, every time. Why? Your credit score is made up of many different factors including payment history. Your payment history makes up 35% of your credit score, making it the largest factor.

A long, consistent track record of making payments will tell credit bureaus that you can handle your current financial situation. The bureaus, which include Equifax, Experian and TransUnion, will then reward you with a higher credit score based on a positive history.

To show you have a good payment history, you can pay your credit card bill in full or at least pay the minimum payment. Either way, the payment needs to be on time each month. This step can easily be put on autopilot with automatic credit card bill payments by the due date.

There may come a time when you forget to make a payment or making payments could get difficult. It’s important to protect your credit score when money gets tight. Take a deep breath and plan to get back on track by adjusting your budget.

Keep your balance low on your card

A credit card is a unique type of loan. Instead of getting a set loan at one point in time and then paying it off slowly, a credit card is a revolving line of credit. You have access to this line of credit at any time and can use up to the credit limit.

Your first credit card probably had a low line of credit, somewhere around a few hundred dollars to a thousand dollars. When determining your credit score, the credit bureaus look at how close to your line of credit you are. This factor in your credit score is called credit utilization. It is the ratio of your balance to your credit limit.

To improve your credit score, you want a low credit utilization. For example, if you have a credit line of $2,000 and have a credit card balance of $500, your credit utilization ratio is 25%. This is a good spot to be in. Credit experts suggest a ratio below 30% to improve your score.

There are two ways to help this ratio if your balance is higher than you want to be. You can pay down your balance or ask your credit card issuer for a credit limit increase.

You can keep your balance low by paying more than your minimum payments. When first starting out, treat your credit card like a debit card and make payments fully and often. This exercise will create good money habits down the road.

You can request a credit limit increase by messaging or calling your credit card company. They will review your current standing and how long you’ve had the card before deciding to increase your credit limit. It’s important to not get discouraged if they say no. Wait a few months or a year and ask again if it will help keep your utilization low.

Keep your credit card open and use it

Age of credit is another factor in your credit score. It’s no surprise that it will take time for your age of credit to improve your credit score. However, it might surprise you that you can hurt your credit by closing a credit card.

You could lose your age of credit by closing an old card, so it’s important to keep cards open while building your credit, especially if the card doesn’t have an annual fee.

While you have a card open, you’ll want to put it to work by having at least one recurring expense. This expense can be small. It can help you continue to build your payment history, as long as you pay off that small recurring expense each month.

Pro tip: If you’re transitioning from an old credit card to a new one, check out our article on how to switch to a new credit card.

Don't apply for too many credit cards

You may be tempted to up your lending game with a variety of credit cards. You may want to open another unsecured card or become an authorized user on a family member’s card. However, it might be best for your credit score to slow things down.

New credit inquiries or a credit pull will ding your credit temporarily. If you’re trying to improve your credit score, don’t apply for too many credit cards or loans in succession.

Why? Lenders want to know exactly how much risk they’re taking on when they give you a line of credit or loan. If you have a bunch of pending applications, a lender may not know how much access to debt you’ll have by the time they accept your application.

Experts recommend spacing out credit applications six months apart just to be safe. Again, be intentional about how you’ll up your credit score.

Monitor your credit for inaccuracies

Typically once a year, you can request a free copy of your credit report from each of the three credit reporting agencies at AnnualCreditReport.com. Use this opportunity to make sure the information they have is accurate.

It’s important to note that utility and cell phone companies report to credit bureaus as well. If you’ve been intentional about paying your credit card bill but still see a dip, it could be a missed or late payment elsewhere. An annual check can help you not only find inaccuracies but check your progress overall.

More ways to boost your credit score

Credit cards are just one type of credit that contributes to your credit score. Other loans should be considered in your credit mix. Check out some other ways to improve your credit score.


Katie Levene is a marketer fascinated with finance. Whether the topic is about the psychology of money, investment strategies or simply how to spend better, Katie enjoys diving in and sharing all the details with family, friends and Money Mentor readers. Money management needs to be simplified and Katie hopes she accomplishes that for our readers. The saying goes, "Knowledge is Power", and she hopes you feel empowered after reading Money Mentor.

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