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The Best Way to Build Credit With a Credit Card
TayTalksMoney: Money, Lifestyle and Productivity

The Best Way to Build Credit With a Credit Card


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(Last Updated On: May 31, 2019)


In this post, we’re going to talk all about the best way to build credit with a credit card! Building credit can feel like a daunting task.

When you have no credit, it’s hard to get creditors to take a chance on you. Credit cards are one vehicle you can use to build credit, and you don’t need credit history to qualify for certain products.

Now, this is important guys.

Having poor credit is really expensive. It means it’ll be much more expensive to borrow money when you need an auto loan, personal loan, or mortgage.

Creditors and lenders give the best interest rates to people who have great credit because they’re more likely to pay off the loan. People with not-so-great credit get higher interest rates because it covers the risk for the lender since you’re at a higher risk of not paying back the money you borrow. Make sense.

In summary — having good credit saves you money.

Here are some tips that cover the best way to build credit with a credit card:


Go Secured

Ok, so if you’re having trouble qualifying for a regular credit card you can try a secured credit card. A secured credit card is one where you put down a cash deposit which acts as your credit limit. You may not need to go through a credit check to get this type of credit card.

On the other end of the spectrum is the unsecured credit card which is the one that you’re probably familiar with. With an unsecured credit card, a company reviews your credit to give you a credit line and you can use it as necessary.

When you have to build credit from scratch (or you have poor credit) card issuers may offer you a secured credit card instead and ask you to put down a cash deposit before trusting you enough to have a regular card.

After proving that you can use the card responsibly (using it and paying it off), you may get a credit line increase and/or a refund of your deposit. Many credit card companies have secured cards available.

Here are a few secured cards that you could consider that require low starting deposits:

  • Discover It Secured Card 
    • No annual fee
    • $200 minimum
    • Free FICO score *credit for monitoring your credit as it increases!*
  • Capital One Secured Mastercard 
    • No annual fee
    • $49 to $200 initial deposit
  • Citi Secured MasterCard
    • No annual fee
    • $200 minimum deposit


How to Build Good Credit — Keep Your Utilization Low

When you do qualify for your secured credit card, it’s time to use it!

The best way to use a secured card is to keep your utilization on your credit card remarkably low. Credit utilization is the amount you have charged on the card vs. your credit limit. You calculate your credit utilization by dividing the credit card balance you’re using by the credit card limit and multiplying by 100 to get a percentage.

So… if you have a $200 limit and $100 balance, your usage is 50%.

You want to keep your credit utilization below 30% — lower is better.

Put small bills or charges on your card each month and then pay it off before the deadline. If you do this consistently, you should see your credit score slowly increase.

The reason behind this is that it keeps your credit utilization low showing creditors that you won’t go wild when you have a card. Plus paying on time is a huge part of what’s considered when calculating your credit score. On-time payments are great for your credit history!


Request a Credit Line Increase

Ok, so you’ve got the credit utilization situation down pat. When you’re starting to get the hang of the whole credit thing, asking for a credit line increase can help improve your credit score as well.

Consider our example of how to keep your credit utilization low from above. If you increase your credit limit and continue keeping your credit card balance low, you’ll decrease your credit utilization even more.

For example, if your credit limit goes to $500 and you still have that $100 balance, your utilization will go down to 20%!

Each credit card issuer has different rules on when you can get a credit line increase and when you can get your deposit back. Some credit card companies will give you a specific amount of time like a probationary period before they’ll send back the deposit to you automatically. Check with the credit card company to find out what the fine print details you are before deciding on a card.


What if you can get approved for a regular credit card?

You’re in luck. If you have less-than-perfect credit and are still able to get approved for a credit card, you can also use it as a way to build credit. Be careful with interest rates and don’t abuse the credit limit.

Keep a very low balance on the card and consider requesting card limit increases every so often. The credit limit increase requests may trigger a card pull on your credit history, but you may only lose a handful of points for the hard inquiry. The few points you lose may be worth the points you ultimately gain by lowing your utilization. You should be vigilant to now overdue it with credit card inquiries. But consenting to a few inquires with a strategy may serve you well.


The Summary on How to Build Credit

The best way to build credit with a credit card is to pay on time and not to abuse the credit that’s extended to you. Follow these rules and you can build credit over time. It may not happen overnight, but it will happen!

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