March 15, 2024

How to Build Credit With a Credit Card: A Beginner’s Guide

Good credit opens the door to many opportunities, from securing loans with low-interest rates to passing the approval process for renting an apartment. But being able to build credit with a credit card can be challenging, especially if you have a low credit score or no credit history at all.

Of course, the way you use your credit cards does help build credit, but it involves a lot more than just making purchases. For example, learning how to pay a credit card bill to build credit or knowing the difference between building credit for beginners and building back credit with a lengthy credit history can help. Here’s everything you need to know to get your credit in shape with the help of your credit cards.

Options for building credit with a credit card

If you’re looking to build your credit with a credit card, the first thing you need is — you guessed it — a credit card. There are a few different card types you can choose from, and some may be more helpful or accessible than others depending on your financial situation and credit history. Here are three primary card options to consider, including their advantages and disadvantages:

1. Secured credit card

Secured credit cards are an ideal starting point for people looking to rebuild their credit after experiencing financial hurdles, like debt or bankruptcy, or for those with no credit history. Unlike regular credit cards, secured cards require a cash deposit upfront, typically serving as your credit limit. This deposit acts as security for the credit card issuer to minimize their risk, making secured cards more accessible to those with limited credit history or lower credit scores.

With secured credit cards, you show financial responsibility by using it for purchases and making timely payments. Issuers report this positive behavior to the credit bureaus, which can gradually improve your credit score. Over time, responsible use of a secured card can help you transition to other cards that don’t require a deposit. If you choose to open a secured card, make sure it reports to all three major credit bureaus (Equifax, Experian, and TransUnion) so that your credit-building efforts don’t go unnoticed.

2. Unsecured credit card

Traditional credit cards are also called unsecured credit cards. These don’t require a security deposit (meaning they’re “unsecured”) and instead offer cardholders a line of credit with the expectation that they will pay back whatever purchases they make. Creditors issue these based on your creditworthiness, so they can be more difficult to obtain if you have a low credit score or poor credit history.

That said, there are many beginner-friendly unsecured cards for those with little to no credit history. For example, young people at least 18 years old who are in high school or college can apply for special student credit cards that are geared toward students just starting their credit journey.

If you’re not a student but are still new to credit or looking to build your credit back up, you might be able to get an unsecured card with basic benefits and a reduced credit limit. This option can give you a chance to show your creditworthiness without having to pay a security deposit like a secured card. Beginner-friendly cards often have features to encourage good credit habits as well, like rewards for on-time payments or tools for monitoring your credit score.

3. Authorized user status

Becoming an authorized user on another person's credit card account is another strategy for building credit. This allows you to benefit from the primary cardholder's credit history without the obligation of opening your own card. If the account is in good standing, being an authorized user adds positive information to your credit report.

Of course, you need to make sure the family member or friend who adds you to their card has good credit habits; otherwise, their mistakes could harm your credit score. Communication and trust between the primary cardholder and the authorized user are key to making this option work effectively for credit building.

How to use a credit card to build credit

Getting a credit card is just the starting line for building credit. You need to make sure you’re using your card properly so that your credit score goes up and not down. Here are five steps to take to improve your credit with a credit card:

1. Obtain the right credit card

When you start using credit, choose a card that matches your financial situation and credit history, whether that’s a secured card, unsecured card, or being added to someone else’s card. Whichever option you choose, make sure the credit card company reports your activity to all three major credit bureaus to help boost your credit score.

2. Make timely payments

If you’re wondering how to increase your credit score with a credit card, paying your bills on time is key. This signals to creditors that you’re reliable at paying off your debts, which helps boost your credit score. Paying your entire credit card balance on time is also one of the best ways to use a credit card to build credit.

3. Monitor and add regular bills to credit reports

Some of the bills you pay, like utility bills, may not show up on your credit score because they simply show up as a purchase item on your credit statement. If you want these bill payments to count toward your credit score, use Experian Boost to add them to your credit report. Then, if you pay them on time, this can show a good payment history on your credit report and help boost your score.

4. Maintain good credit habits

Making good credit habits means making sure you pay your bills on time, keeping track of how much money you spend, and paying more than just the minimum amount on your bills so you don't have to pay extra interest charges.

You also don’t want to use too much of your credit limit, since this increases your credit utilization rate. Having high amounts of debt can hurt your credit score because it makes it seem like you're relying too much on borrowing money. Lenders might see this as risky, lowering your credit score.

5. Review and understand your credit

Checking your credit report and score frequently can help you determine where you stand financially and how much you’re progressing. If you have a big gain one month, try to copy your spending behaviors from that month.

Track your credit score for free with EarnIn

EarnIn can give you a bird’s eye view of your credit to help you take charge of your money and build toward your financial goals. With EarnIn’s innovative app, you get access to a range of powerful tools and resources that help you stay on top of your credit and keep moving forward.

Our free Credit Monitoring tool is especially handy for anyone looking to track their credit. It allows you to keep a check on your credit score in real-time and see how you’re progressing. If you’re looking to limit your reliance on your credit card, you can also use EarnIn’s Cash Out tool, which lets you access your pay as you work — not days or weeks later. You can get up to $100 a day and up to $750 every pay period with no credit checks, no interest, and no mandatory fees.

Download the EarnIn app to your toolkit today and discover money at the speed of you.

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