How to use a credit card to build credit

Using a credit card can be an effective way to build or rebuild credit. However, it’s crucial to develop responsible habits, such as making on-time payments and staying well below your credit limit. 

Keep reading to learn how you can start building or rebuilding your credit with a credit card. 

What you’ll learn:

• A credit card can be a good tool for building credit if it’s used responsibly.

• There aren’t 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 when used responsibly, whether you’re looking to establish credit for the first time or improve existing credit scores.

No matter where you’re starting from, you can make a plan to start building credit or rebuilding your credit today. Just keep in mind that building credit takes time and responsible use, and everybody’s situation is different. 

The following tips are a good starting point for understanding how a credit card may help you build your credit:

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 keeping your credit card balances at or below 30% of your credit limit.

Lowering your credit utilization ratio can help you maintain or improve your credit scores. Some ways to lower your credit utilization include paying off as much of your balance as possible or requesting a credit limit increase. A higher credit limit can improve your credit utilization ratio and, therefore, your credit scores.

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 and your credit scores high. 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 can help you detect and report credit card fraud immediately. Quickly stopping unauthorized spending in your name will help you protect your credit scores and limit your liability for fraudulent charges.

Monitoring your credit reports lets you see how your credit card activity impacts your credit scores, which lenders use to predict how likely you are to pay your debts on time. Alongside helping you make better-informed decisions going forward, monitoring your reports can also help you spot errors and potential fraud attempts that may harm your credit.

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

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 typically no credit check, either. It’s ultimately the primary cardholder’s responsibility to make the monthly payments. However, their responsible card use may help you build credit and boost your scores.

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

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. The 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 upgrade 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 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.

Building credit takes time, 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, cellphones 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:

Whether you’re thinking about your first credit card or working toward building or improving your credit, remember 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 with responsible use, there are plenty of cards designed for every credit level. With Capital One, you can compare card offers before you even apply. See if you’re pre-approved today without any harm to your credit.