Updated November 13, 2013

How to Build Credit with a Credit Card

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Credit cards are fantastic tools to help you build your credit history. In fact, they are usually the main way to build credit so that you can one day get a mortgage or a hefty loan, without needing a cosigner. But you need to choose the right card that will give you the best chance of building a strong credit history and, ideally, pave the way toward those future loans.

Here are some steps you can take to build your credit with a credit card.

  1. Consider a secured card if you don’t have a credit history.

    Many people find that a secured credit card is a good option for their first credit card. A secured credit card is one that requires a security deposit. That deposit goes into an account tied to the credit card. Should you ever default on a credit card payment, the credit card issuer can use the money in that account to cover your outstanding balance.

    Many consumers view a secured credit card as an inconvenience because it ties up some of their savings. But it is a low-risk way for a credit card issuer to help you build your credit while you learn responsible card usage.

    If you go this route, don’t view the card as a punishment. Instead, view it as an opportunity to prove to your current and future lenders that you can be responsible with credit. After you’ve built your credit card history, you’ll be able to graduate to an unsecured card.

  2. Look over your choices before signing up for a card.

    You may also want to explore applying for a gas card or department store card to help build your credit. If you are still in college, consider applying for a college student credit card.

    These cards often have lower credit limits, which typically means the card issuer has less stringent qualification standards. When you’re ready, you may want a mix of credit card types since your credit mix is one of the many factors used to calculate your credit score.

  3. Use the card but act responsibly.

    It can be incredibly tempting to go on a huge shopping spree when you add that shiny piece of plastic to your wallet, but proceed with caution. You ultimately want to build an excellent credit score – and not saddle yourself with unnecessary debt. At the same time, you don’t want to be too scared to use the card that you don’t use it. The point is to create documented history that shows you know how use credit wisely.

    Here are some of the most important spending behaviors to keep in mind:

    • Stay well within your limit: For the best credit score, keep your balance at less than 35% of your credit limit (for example, if you have a $1,000 limit, keep your balance at or below $350).

    • Pay on time, every time: Keep track of when your bill is due since late payments will put a serious dent in your score.

    • Pay the entire balance: At the very least, you need to pay the minimum balance, but paying in full will help you stay within your limit and avoid interest charges.

    • Keep your account open: Don’t be tempted to close your first credit card when you move on to a more premium account. The length of open, active credit accounts is an important factor in determining your credit score.

  4. Expand your wallet.

    Once you have used your first card responsibly for at least six months, you can try applying for another card. When choosing your next card, consider looking for one that is part of a different major credit card network or for a store that you frequently shop. This way, it will be a card that you actively use instead of a stagnant piece of plastic.

    Just don’t go crazy with credit card applications, as each time a potential creditor pulls your credit, it creates a “hard inquiry.” These credit requests will be on your credit history for two years and cause a slight decrease to your score.

Don't forget to monitor your credit report.

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Infographics: Credit Checkup
Infographics: Credit Checkup © CreditDonkey

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