How to Build Credit With a Credit Card

Credit cards aren’t just good for collecting airline miles and getting cash back — they’re also powerful tools when it comes to building credit. About 35% of your credit score comes from your payment history. One of the easiest ways to raise your credit score is to create a history of timely payments on your credit cards. But if you have bad credit or no credit, how can you get the card you need to improve your score?

We’ll look at the many ways that you can build credit using a credit card. We’ll explore solutions if you have bad credit or no credit and we’ll show you the best way to use your card. Finally, we’ll go over how long you can expect to wait before you see your score rise.

Ways to Build Credit with a Credit Card

Do you have no credit or poor credit? You need a card to start making on-time payments and improve your score. But credit card companies want to limit their risk — and they may not offer you a card if your score is too low. 

This paradox can catch you in a frustrating cycle of lowered scores and card rejections.

Let’s take a look at a few credit solutions you can use if you want to build credit with a credit card but your score is too low to qualify for standard offers. 

Consider a Secured Credit Card

A secured credit card could be a great solution if you have bad credit. You put down a deposit for a secured card, which becomes your credit line. For example, you might put down a deposit of $300. Your credit card company hangs onto your money and gives you a card with a $300 credit line.

From there, your secured card works exactly like a standard credit card. You make payments with your card, pay your bills before the due date each month and accumulate interest on your purchases. Credit card companies then report your timely payments to the credit reporting bureau, which improves your score over time. 

Many companies also allow you to transition to an unsecured credit card after you prove yourself with a few months of on-time payments. Your credit card company gives you your deposit back if you decide to close the card.

A secured credit card is a win-win for both you and your creditor if you have bad credit. You get to build your score and it’s a low-risk way for the creditor to lend you money. 

Become an Authorized User

You could also become an authorized user on another user’s card. In other words, you’ll “piggyback” off another person’s credit-building habits when you’re an authorized user. Whenever the primary user (the person who owns the card) makes an on-time payment or reduces their credit usage, your credit score gets a boost as well. You don’t even need to spend any money on the card or contribute toward the minimum payments. 

Be advised that you inherit all of the other person’s credit habits when you become an authorized user on a card — both good and bad. Your score will take a hit if the primary cardholder starts missing payments or maxing out the card. Choose your primary cardholder carefully.

Open a Student Credit Card

You probably haven’t had a ton of opportunities to build credit as a student. Credit card companies know this — and they frequently offer special card offers just for students who have an .edu email address. Student credit cards are unsecured cards that have very low credit limits and few rewards. 

They also usually don’t have high interest rates, and you can get one even if you have no credit history. Some cards even have “good grade bonuses,” which give you a cash credit if your GPA is above a certain threshold. It can be a good idea to open a student card and start building a credit history while you’re still in school. This will make it easier to rent an apartment, get an auto loan or transition to a higher-limit card after you graduate.

Best Practices When Using a Credit Card to Build Credit

It’s time to start building credit once you’ve chosen your credit card. Let’s go over a few credit card best practices to help you keep your score on track. 

Use a Credit Monitoring Service

A credit monitoring service alerts you when new items appear on your credit report. Credit monitoring services can help you catch instances of identity theft fast and eliminate them before they can damage your score. Sign up with a monitoring service to keep yourself on track if you’re on the journey toward a better credit score.

Are you searching for a reliable credit monitoring service? Consider signing up for a Zero-Fee Checking account with MoneyLion. All MoneyLion members have access to credit monitoring just by signing up for an account. You can also check your score and get credit advice in the MoneyLion app. Much more is available for free when you sign up for your Zero-Fee Checking account.

Make Your Minimum Payments On Time

The most effective way to use your credit card to improve your credit score is to build a history of on-time payments. You can do this by always paying at least the minimum balance on all of your credit cards each month.

Every credit card has a different minimum monthly payment. You’ll need to check with your credit card company to find out when your payment is due and how much you need to pay to avoid a late penalty.

Keep track of your credit card payments, particularly if you have multiple cards. Sit down with all of your credit card statements and write down each card’s minimum payment and due date. Then, write this information down somewhere where you’ll see it often, like on a desk calendar or in your day planner. That way, you won’t accidentally lower your score by forgetting a payment.

Some credit card companies offer an optional autopay feature. Your credit card company will automatically deduct your minimum payment on your due date. Consider enabling this convenient feature as long as autopay won’t put you at risk of overdrafting your account. 

Keep Your Utilization In Check

“Credit utilization” refers to how much of your available credit you use every month. Creditors calculate your utilization rate by dividing the amount of credit you use by your total available credit. For example, if you have a credit card with a $1,000 limit and you put $200 on it every month, you have a utilization rate of 20%.

Creditors see you as a riskier borrower if you use too much credit. They may assume that you don’t have much in savings and that you need to rely on credit cards to pay your everyday bills. Your credit score will drop if your credit utilization is high, but if you keep your utilization low, you’ll see your score rise.

Try to keep your utilization rate at or below 10% for the biggest increase in your credit score. If this isn’t possible, aim to keep your utilization below 30%. Anything above 30% will set off some red flags for your creditors. 

How Long Does it Take to Build Credit?

You probably want to see your credit score improve as quickly as possible if you’re working to raise your score before you apply for a loan or a new credit card. But building credit is a marathon — not a sprint. It will take a minimum of one month to see your credit score improve because most credit reporting bureaus only collect data once a month. Even after that, you may only see your credit score rise by a point or two, depending on the other items on your report.

Patience is the key to raising your score by a significant amount. Stick with your credit-building plan, don’t use too much of your available credit and keep making your payments when they’re due. It may take a few months to get the ball rolling, but you’ll see your score improve over time. 

Building Your Credit Reliably and Safely

There are no magic tricks or secrets to improving your credit score. Be wary of any company that tells you it’s possible to raise your score by 100 points or more in a few weeks or a month. The only way to safely improve your credit score is with consistent effort and a solid plan. Don’t get discouraged if you don’t see your numbers rise in a month or two! Stick to your plan and your score will rise eventually.

Are you ready to get started on the road to a better credit score? MoneyLion can help you on the road to a better credit score today. Download the MoneyLion app from the Google Play or Apple App store to learn more and to get started.

Disclosure

MoneyLion Checking Account provided by, and MoneyLion Visa® Debit Card issued by, Lincoln Savings Bank, Member FDIC. Terms and conditions apply.

Investment advisory services provided by ML Wealth, LLC. Investment Accounts Are Not FDIC Insured • No Bank Guarantee • Investments May Lose Value. For important information and disclaimers relating to the MoneyLion Investment Account, see Investment Account FAQs and FORM ADV. Broker-Dealer may charge a $0.25 withdrawal fee, among other fees. Funded accounts are subject to administrative fee of $1 per quarter.

Current Credit Builder Plus membership required for Credit Builder Plus loan eligibility; the $19.99 monthly fee will be withdrawn from your linked bank account.  All loans with an Annual Percentage Rate of 5.99% are made by either exempt or state-licensed subsidiaries of MoneyLion Inc. The Credit Builder Plus loan may, at lender’s discretion, require a portion of the loan proceeds to be deposited into a reserve account managed by ML Wealth, LLC and held by Drivewealth LLC, member SIPC and FINRA. The funds in this account will be placed into a money market cash management or FDIC bank sweep vehicle, and may generate interest at prevailing market rates.  You will not be able to access the portion of your loan proceeds held in the credit reserve account until you have paid off your loan, and so long as your Credit Builder Plus membership payments are current. If you default on your loan, your credit reserve account may be liquidated by the lender to partially or fully satisfy your outstanding indebtedness. May not be available in all states.Credit Reserve Accounts Are Not FDIC Insured • No Bank Guarantee • Investments May Lose Value. For important information and disclaimers relating to the MoneyLion Credit Reserve Account, see Investment Account FAQs and FORM ADV.

A Credit Builder Plus loan may or may not improve your credit score. Credit scores are the result of your personal credit practices.

Cash advance requires current membership in Credit Builder Plus ($19.99 monthly fee) or Instacash with Banking ($9.99 monthly fee) membership programs. Instacash with Banking monthly fee is waived for members who connect and maintain recurring eligible direct deposits into their MoneyLion Checking Accounts. All Credit Builder Plus and Instacash with Banking members are automatically eligible to access either $25 or $50 of cash advance, depending on creditworthiness.  Members can increase their cash advance limit to up to $250 by connecting and maintaining recurring eligible direct deposits into their MoneyLion Checking Accounts and after up to three consecutive direct deposits have cleared, or at MoneyLion’s discretion. See Membership Agreement and Cash Advance FAQs for more information.

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