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In This Article

  1. Step One: Pick the Right Credit Card and Apply
  2. Step Two: Use Your Credit Card
  3. Step Three: Manage Your Credit Card Correctly
  4. Your Decisions Matter

So, you’ve heard you can use a credit card to help build (or rebuild) your credit. But how does the process work? It can’t be as simple as just opening a credit card account and—poof!—your credit is better, right?

No, unfortunately the process isn’t quite that easy. Building your credit scores takes time (plus a few good habits). Still, you can use a credit card account to help push your scores in the right direction.

Here’s how to use a credit card to build credit.  

Step One: Pick the Right Credit Card and Apply

Holding different credit cards

Before you can build credit with a new credit card, you need to know how to choose the right type of account.

Sure, you might like to have a black card with insane perks tucked inside of your wallet (who wouldn’t?). But just because a credit card offer is attractive doesn’t mean it’s right for you.

Before you pick a credit card to apply for, consider the following:

  • How is your credit?
    It’s smart to know the condition of your credit reports and scores before you fill out any applications for new credit. You can claim a free credit report from all three credit bureaus—Equifax, TransUnion, and Experian—once every 12 months at AnnualCreditReport.com.

    Be sure to comb through your reports carefully to check for mistakes and errors. If you find any problems, the Fair Credit Reporting Act (FCRA) allows you to file a dispute with the credit bureaus and/or creditors who are reporting the bad information.

    Remember to check your credit scores too. You can’t do that for free at the website above, but there are several websites where you can check your scores inexpensively or for free.
  • Compare credit card offers
    Once you’re armed with knowledge about the condition of your credit, you can begin your search for the perfect (for you) credit card offer.

Have no credit or low credit scores?

Check out secured credit cards or subprime offers geared toward people with “poor” credit—don’t worry, your new account can potentially be a catalyst to help you move out of that category in the future.

Are your credit scores in good shape?

If so, consider credit card offers which cater to people with good credit scores.

Do you have stellar, 760+ credit scores? If you do, kudos!

You may be able to choose from the most attractive credit card offers available. As long as you can meet a card issuer’s other qualification requirements, being approved for a killer credit card offer shouldn’t be a problem for you.

Step Two: Use Your Credit Card

Purchasing an item using a credit card

It’s not enough to open a credit card account and tuck it away in your wallet, never again to see the light of day. You need to use your account, at least every once in a while.

If you don’t use your credit card account, it could come back to bite you in a couple of different ways.

  • Your card issuer might close your account due to inactivity.
    Have you ever heard the saying “use it or lose it”? The phrase can apply to your credit card accounts.

    If you go long enough without using your credit card account, you risk having the issuer close it. And, if your account is closed by the credit grantor, there’s a chance it could hurt your credit scores.
  • Not using revolving credit could damage your credit scores.
    Credit scoring models consider many factors when your scores are calculated. One factor which could damage your credit scores is a “lack of recent bank/national revolving information” on your credit reports.

    According to FICO, if your credit scores indicate they’re being held back for lack of revolving information, it may be time to show new activity on a credit card account. FICO goes on to say that, if you already have a credit card, you can do this by using it and paying it back on time.

Step Three: Manage Your Credit Card Correctly

Typing on a calculator while holding a credit card

Simply using your credit card isn’t enough to build positive credit. You also need to manage your account the correct way.

There are two keys to managing a credit card well: always pay on time and always pay your balance in full.

Here’s a breakdown of why these two rules are so important for your credit scores.

  • On-Time Payments

    The two most popular brands of credit scores used in the United States are FICO and VantageScore. Both brands design scoring models which pay close attention to the payment history on your credit reports.

FICO Scores (used by 90% of top lenders) base 35% of your credit scores on payment history. VantageScore states that payment history is “highly influential” over your credit score as well. This means if you want to earn better credit scores, on-time payments are a must.

  • Paying in Full

Paying bills on-time is important. However, great payment isn’t enough to build great credit scores. In fact, 65% of your FICO credit scores have nothing to do with your payment history.

The balance on your credit card accounts (according to your credit reports) is also incredibly influential over your credit scores. 30% of your FICO Scores are largely (though not entirely) based upon your credit card utilization.

Credit card utilization, also known as revolving utilization, describes the percentage of credit limits being used on your credit cards.

When your credit reports show that you’re tapping into more of your available credit limit, it isn’t good for your credit scores.

On the flip side, if you pay off your balance in full each month (ideally before the statement closing date on your account), your credit scores could benefit.

Your wallet will also thank you when you pay in full. Paying in full helps you to avoid wasting money on expensive credit card interest fees.

Your Decisions Matter

Love them or hate them, credit cards are merely a tool. Whether they build your credit scores or hurt them all depends upon how you manage your accounts.

Manage them poorly and your credit scores could suffer.

Manage them well and your credit scores could soar!