How To Build Credit With A Credit Card | Credit card


If you have no credit, you probably think it’s nearly impossible to get approved for a credit card, let alone be able to use a credit card to build credit.

Chances are you won’t get your top card, but it’s just a matter of targeting the right ones. And once you have a credit card, you’ll find it’s one of the best ways to build up credit.

How to get your first credit card

Now, I’m not talking about a fancy credit card that grants you access to multiple airport lounges. No, your card may have rewards, but you won’t be sitting in a suite sipping free cocktails.

Here’s the thing: it doesn’t matter. Your first credit card is a tool to build your credit. This is your goal for now. Fancy cards can reside in your wallet later.

But what if you’re not comfortable getting your own credit card right now? Maybe everything is new to you and you want to learn the ropes first. You can start by piggybacking on someone else’s credit.

If you have a relative, relative, or close friend who has great credit, becoming an Authorized User may be an option. It’s called piggybacking because, as an authorized user, you can build a credit history without having to qualify for your own card.

This arrangement works if you and the account holder have a detailed discussion about what you can buy with the card and what your dollar limit will be. If you buy too many items with the card, the account owner’s credit takes a hit. Don’t let that happen. You have a great opportunity to build credit, so track your spending and use the card responsibly.

How to build credit with a credit card

If you’re ready to take the credit card plunge, make yourself comfortable. We’ll go over four different options: secured credit cards, student credit cards, unsecured credit cards, and retail credit cards.

Secured credit cards

When the target market includes people trying to build or rebuild their credit, there will always be a few lenders trying to take advantage of this vulnerable group. Carefully read the terms and conditions of secure cards.

But I spent a lot of time researching secure cards, and there are some great ones in this category. You should be aware that applying for a credit card may result in a thorough investigation of your credit report, which usually knocks your score down a few points. Since points are more important when you’re new to credit, a few issuers will allow you to be “pre-approved” before applying. The advantage is that if you don’t qualify for the card, you know it upfront and you don’t get a serious application with nothing to prove.

With secured cards you need to make a security deposit and some cards have annual fees. But if you use them responsibly, you can use these cards directly in the land of fair credit, which is a FICO score between 580 and 669. There are some very good unsecured cards available in this category.

Some secure issuers offer unsecured cards, so you may be able to upgrade to an unsecured card with the same issuer. But if not, you’ll be in a good position to request an unsecured card from another issuer. When you close your secure card account, your security deposit will be refunded to you.

Student Credit Cards

If you’re still in college or university, you might qualify for a student credit card. Be aware that many issuers appreciate good ratings. Being a student is hard work, and a good GPA shows your determination and sense of responsibility.

If you are under 21, the Credit Cards Act 2009 requires you to show proof that you have enough income to pay your debts. This requirement could be met by part-time employment, parental support, student loans, or other income you receive.

If you don’t have enough income to be approved, you will need a co-signer. Only a few issuers allow co-signers on credit cards. If a student card isn’t an option and you don’t like a secure card, consider becoming an authorized user on a relative’s or parent’s credit card to build up credit.

Unsecured credit cards without credit

It’s not impossible to get an unsecured credit card with a limited credit history, but you should be careful with these cards. They may advertise that almost anyone can be approved, but the costs of using one of these cards can be exorbitant. And there are a few that don’t have a grace period, meaning you start paying interest the day your purchase posts to your account.

I generally recommend a higher secure card over one of these unsecured cards. If you still want to explore these maps, just be sure to read all the fine print. Maybe even read it three or four times. Unsecured cards for those with no or bad credit may also offer the option of pre-approval.

Retail credit cards

Although retail credit cards can help you build credit, they have drawbacks. Be sure to read the terms and know the interest rate. These cards are much easier to get than most other cards because the interest rates are high and they usually have low credit limits.

Retail credit cards can be useful for getting sales information or earning rewards when you shop at a specific store often. But do not carry a balance with these credit cards. Compound interest makes your balance grow quickly. Also, if your balance exceeds 30% of your credit limit, it can hurt your credit score.

4 Steps to Building Credit with a Credit Card

The worst is over. You have your first credit card. No matter what type of card you have, here’s what you need to do to establish a great credit report and a solid credit score:

  • Use your credit card. You must purchase items on credit and pay the bill to develop a payment history. Avoid trying to rack up rewards if your card has a sign-up bonus. Use your card only for expenses that you have to pay anyway. The goal right now is to build credit and develop healthy credit habits.
  • Track your expenses. If you do anything but that, you probably won’t stick to your budget. You need to know how much you are spending and where you are spending it.
  • Available credit is 30% of your FICO score. Keep your credit utilization ratio, which is the amount of credit you’ve used compared to the amount you have, below 10% to increase your score.
  • Pay your bills on time. Payment history accounts for 35% of your FICO score. Yes, this is a big problem. So pay your credit card balance in full and before the due date. Know that it is a myth that you must have a balance to build a good credit score. Pay on time and you can earn a great score without paying interest. If you have a balance, you will end up in debt, which can lower your credit score.

Follow these four simple steps for six months and you’ll generate a FICO score. If your issuer offers a free credit score, you may see the number increase each month. There are also free educational sheet music available online.

Your card activity must be reported to the credit bureaus for this to work, of course. And if it’s unclear whether the issuer reports your payment history to all three credit bureaus, call the lender to confirm before applying for a specific card.

Be patient and persistent. Over time, responsible credit card use will help you build a great credit history and a great credit score.

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