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How to Use Credit Cards to Build Credit

The amount of credit card accounts you own along with the length and quality of your credit history affect your credit score.  They show your ability to manage your budget regularly over time, even when you’re offered opportunities to go beyond your budget. If you never borrow money at all, it’s difficult for creditors to anticipate how reliable you’ll be when you do.

Credit card issuers report your account and account activity to the national credit bureaus each month. They use this information to create credit reports, which then contribute to your credit score.

The key to building your credit through credit cards is making all your payments on time and in full as much as possible, only using a small portion of your credit limit, and perhaps most importantly, obtaining a credit card in the first place.

But trying to build your credit score can sometimes feel like a catch 22: you can build your credit through using credit cards, but you need to have credit in order to get approved for credit cards in the first place.

How Can I Get Approved for a Credit Card, and Which One Do I Choose?

If you’re young and have never established credit before or you’re trying to recover from a low credit score, it may seem like you don’t have many options to get a credit card. Browsing credit card offers is a good place to start, as they usually give you a range of credit scores that they approve cards for. Credit card comparison tools are also available online and offer great resources to help you narrow down which cards you can be eligible for with your score.

Not sure what your current score is? You can obtain a free credit report from Experian or a free credit score from Discover without having to have a credit card.

Having established credit, a stable income, and having low debt with timely payments over time gives you the best shot, but if you’re just starting out or need to improve your score first, there are other options for you.

If you have a family member or partner who has a good credit history, you can ask them about being authorized on their account. While this won’t improve your score as quickly as having your own card, it will give you a bump. However, it’s important that person is reliable in their payments because their history will then appear on your credit report.

Another option is secured credit cards, which require a refundable security deposit when you open your account. They usually have high-interest rates and don’t offer great cardholder benefits, but they can be cheaper than non-secured cards if your credit is low. Starter credit cards usually have a low starting credit limit and an annual fee of up to $100, but they can be a good temporary option. If you’re a student, there is usually a student credit card available specifically for your demographic from most major creditors.

Building Credit Once You Have a Credit Card

Ideally, the most efficient way to build your credit with credit cards is to set up autopay to pay your balance in full each month. So long as you have the funds to cover this and don’t spend more than you can afford, this eliminates your risk of missing any payments or getting hit with interest rates.

If this is not practical for you, you should at least make the minimum payment each month. If you’re not sure you’ll have enough funds in your account at the right time for automated payments, be sure to make notes or alarms as a reminder.

While you typically have a 21-day grace period for making late payments, the credit card company can report your account once it’s 30 days past due, and that late payment can stay on your credit report for up to seven years.

Don’t be fooled by credit limits and assume that this is the amount of money that you can safely spend with your card without taking a credit hit. Sources vary on what percentage of your limit you can spend, but typically between 10-30% is recommended, ideally less than 10% if possible.

If you’re worried about spending beyond your means or being tempted to overuse your credit card, you can even lock it up and never use it, and your score will still improve (albeit not as quickly). Simply having an open credit card account that’s active will get positive information reported to the credit bureau each month because when you’re not spending, you won’t have late payments.

You may think that more cards would equate to more improved credit, however having too many cards might tempt you to spend beyond your budget. Plus, each time you apply for a new credit card, it triggers an inquiry on your credit report which can drop your score for up to a year. You should consider keeping old cards open if you can to improve the length of your credit history, but if it’s going to entice you to overspend, consider putting it somewhere you won’t be tempted to use it.

If you need help with debt collectors or reducing your debt entirely, PCS Debt Relief can help with our debt relief services that are tailored to your needs. We understand the burdens and stress that debt creates, and we’re here to help you every step of the way. Call (636) 209-4481 for a free consultation to achieve financial stability.

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