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How To Build Credit With A Credit Card

a woman building credit with her credit card by making a purchase on her smartphone

Credit cards often get a bad name for themselves. They may be viewed as more of a debt building strategy than a credit building one. However, to build a solid credit score – one that will serve you well when buying a car or a home – you need to use credit. And, credit cards make that possible.

You Need Credit To Build Credit

Lenders use credit scores to determine a borrower’s risk level. They look at your credit history to do so. Yet, for those without much credit history, it’s hard to gauge. That’s where credit cards come into play.

Because most credit cards start with a limited credit line, they have a lower level of risk to lenders. When you open one and use it wisely, you can effectively increase your credit score and prove to lenders they should work with you for other borrowing needs down the road.

Steps To Building Credit With A Credit Card, Wisely

To build credit with a credit card, you need to use it responsibly so it doesn’t lead to negative marks on your credit report. At the same time, you also don’t want to end up with overwhelming debt at high-interest rates.

So, how can you find a balance when using credit cards? Here are a few factors to focus on.

No credit? Start with your local credit union

If you have little to no credit, it might seem challenging to know where to begin. Your local credit union is a great place to start! As a credit union member, you already have an established relationship. Your credit union already knows your financial background and they are willing to take the time to help you build your credit.

Make purchases you’ll pay off right away

To build credit, you have to use credit cards. That means making purchases. One of the best ways to do this is to use your card for something you buy every month.
For example, use it for all of the gas station trips you make during the month. This is money you’re spending anyway.

At the end of the month, pay off the balance in full so you are not carrying a balance month-to-month. This offers several benefits:

  • You don’t have to pay high-interest rates.
  • You don’t have debt that’s building month-to-month.
  • You’re proving to lenders you’re a responsible borrower.

Set up automatic payments to cover those costs

One of the worst things for your credit report is missed payments. Setting up automatic credit card payments makes it impossible to forget. Set the amount you wish to pay (or the balance in full), and the system will automatically debit that amount from your account.

It’s advisable to set the payment date for a few days before the actual payment due date.

Keep your balance under 30%

If you do carry a balance on your credit card from month to month, keep it under 30% of the total credit line. If you have a $1000 limit, don’t allow more than $300 to linger. Being over 30% could harm your credit.

Other Helpful Ways To Build Credit With A Credit Card

Credit cards can be an outstanding opportunity to build credit, but you have to know how to use them wisely to get the best boost to your score. Here are a few more rules to take into consideration:

  • If you already have some credit card debt, look for a new card with balance transfer opportunities. You can consolidate your debt into one payment, reducing interest costs and building credit with on-time payments.
  • Avoid opening too many new lines of credit (or applying for them) at one time. Lenders want to know you’re looking to improve your score through good financial management. You don’t want to appear desperate for credit.
  • Always repay your debt on time and try to pay more than the minimum payment. That, too, can impress your lender into trusting you with a credit increase.
  • Check out rewards and cash back offered through your credit card. This allows you to save money, and even receive money back.
  • Use credit consistently. It takes time to build a credit score.

Choosing The Right Credit Card

The more you know about the credit card you’re selecting, the better.

When looking for the right credit card offer, keep your eyes out for the following:

  • A competitive interest rate
  • Low or no annual fees
  • Online payment tools
  • Rewards opportunities
  • Cash back opportunities
  • No balance transfer fees (if applicable)

At Jeanne D’Arc Credit Union, we work to ensure you have access to competitive interest rates and features that make using credit easy and rewarding. Click the button below to learn more about the credit cards we offer.

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