How to use a credit card to build credit

When you think about the benefits of a credit card, what comes to mind? The extra spending flexibility? The chance to earn rewards? Or the added protection from security features? Or maybe it’s the ability to use a card to improve credit? 

When used responsibly, a credit card can be a good tool for building or rebuilding credit. And better credit can improve your chances of qualifying for loans and credit cards. It might even make it easier to rent an apartment or find a job. 

Key takeaways

• Good credit scores can help you get better rates on loans and mortgages. They might even positively affect job or rent applications. 
• A credit card can be a good tool for building credit if it’s used responsibly. Responsible use includes things like making on-time payments and staying well below your credit limit.
• There aren’t really any shortcuts when it comes to building credit with a credit card. Lenders look at how you manage debt over time.
• There are credit card options you can use to build credit, whether you’re looking to establish credit for the first time or improve existing credit scores.

First things first. When you’re building or rebuilding your credit, it may be helpful to know a few quick basics about your credit scores:

• A credit score is a reflection of creditworthiness. It’s used to predict how likely a person is to pay their debts on time.
• Credit scores are based on information in your credit report. That information can include things like your payment history, how many credit accounts you have and how much credit you’re using. 
• Each credit score is a three-digit number. Most scores range from 300 to 850. That range breaks down into smaller score ranges that you can use to gauge your credit health.
• You have multiple credit scores. And scores are calculated using different scoring models from companies like VantageScore® and FICO®.

With a better understanding of where you’re starting from, you can make a plan to start building credit or rebuilding your credit. Just keep in mind that building credit takes time, and everybody’s situation is different.

Your credit scores may be affected by how much of your available credit you’re using, which is known as your credit utilization ratio. The Consumer Financial Protection Bureau (CFPB) recommends trying to keep your credit card balances at or below 30% of your total credit limit.

Late credit card payments could incur late fees and interest rate increases. And if they’re reported to the credit bureaus, they could stay on your credit reports for years. Paying your bill on time shows responsible credit card use and may help you improve your credit. If you have trouble staying organized, you can consider automatic payments or electronic reminders to help you avoid missing payments.

Paying off your entire balance can help keep your credit utilization ratio low. It can also help you pay less in credit card interest than if you carry over your balance month after month. But if you can’t pay your balance in full, the CFPB recommends paying as much as possible—and making at least the minimum credit card payment. As the CFPB explains, “The higher the balance you carry from month to month, the more interest you pay.” 

If you already have a card and feel like you’re struggling to keep up with payments, check out these tips to pay off credit card debt.

Regularly checking your credit card statements may help you detect credit card fraud and report it. Quickly stopping any unauthorized spending in your name could help you protect your credit scores and limit your liability for any fraudulent charges. 

Monitoring your credit reports can help you see how your credit card activity adds up over time to impact your credit scores. That can help you make better-informed choices going forward.

Another benefit of monitoring your credit is that it may help you spot errors and potential fraud attempts that may hurt your credit. 

You can get free copies of your credit reports from AnnualCreditReport.com. And with CreditWise from Capital One, you can access your TransUnion® credit report and VantageScore® 3.0 credit score without hurting your scores. CreditWise is free for everyone. You don’t even have to be a Capital One customer to use it.

Whether you’re building credit with your first card or looking to improve your scores, there are credit card options for you. Many credit card issuers, including Capital One, offer credit cards for people with less-than-perfect credit. Here are some options to consider:

Secured credit cards are a lot like traditional, unsecured credit cards except that you make a security deposit before getting one. That deposit acts as collateral, similar to a security deposit for an apartment rental. It’s usually refundable, like with the Capital One Platinum Secured card.

Secured cards can help you build credit so that you can eventually graduate to a traditional, unsecured card. Check with your credit card company to understand what’s possible and how your account will be treated if you transition to a traditional card.

Student credit cards are regular credit cards but for college students and recent graduates. They usually have some features that are tailored to a student’s lifestyle, like rewards on entertainment, streaming services, meal delivery services or travel purchases. Approval requirements may be more relaxed to accommodate applicants who don’t have any credit yet.

Have a friend or family member open to helping you build credit? When someone adds you as an authorized user on their credit card account, you may be able to get your own card and  make purchases. 

You don’t generally need to apply to become an authorized user. There’s generally no credit check either. It’s ultimately the primary cardholder’s responsibility to make the monthly payments. But their responsible use of the card may help you build credit and boost your scores.

A couple of things to keep in mind: You may want to check whether the card issuer reports authorized users to credit agencies. And if you or the primary cardholder don’t use the card responsibly, that could affect your credit negatively.

It takes time to build credit. But there are some things you can get started on right away:

• Round out your credit file. If you have thin credit, with few or no credit accounts, you could look into which types of bills help build credit. When factored into your credit scores, things like rent, utilities, cellphone and even streaming service payments can show your financial responsibility. 
• Check on revolving credit balances. Late payments and a high credit utilization ratio carry a lot of weight in your credit scores. Catching up on late credit card bills and other revolving credit balances can help your scores and prevent further damage.
• Limit new credit line applications. Every credit application triggers a new hard inquiry, which can decrease your credit scores in the short term. A new line of credit might also lower the average age of your credit history, another credit-scoring factor.

Check out these answers to frequently asked questions about building credit with a credit card:

If you’re getting your first credit card or working toward building or improving your credit, remember that there aren’t any shortcuts. Building credit takes time and good financial habits. 

If you’re interested in using a credit card to build credit, there are plenty of cards designed for every credit level. You can research cards and their terms online. At Capital One, you can check card offers before you even apply. Pre-approval is quick and only requires some basic info. And it won’t hurt your credit scores.