4 Ways a Credit Card Can Raise Your Credit Score

If used wisely, opening a new credit card can actually be beneficial to your credit score.

A woman's hand holding a blue credit card
Updated May 13, 2024
Fact checked

We receive compensation from the products and services mentioned in this story, but the opinions are the author's own. Compensation may impact where offers appear. We have not included all available products or offers. Learn more about how we make money and our editorial policies.

After your Social Security number, your credit score is one of the most significant numbers of your financial life. Your credit score helps decide whether you qualify for loans and what your interest rates will be.

Using a credit card can have an impact on your credit score. Everything you do with a card — from applying for a new one to paying down your balance — can cause your score to increase and decrease. It’s important to understand how credit cards affect your credit so you can maintain a good score.

What is a credit score?

When you apply for a loan or a credit card, companies need to review your information and make a decision quickly. To do so, they typically look at your credit report, which details your financial history, and your credit score, a three-digit number that tells a lender how responsible you are, if you know how to manage your money and how likely you are to repay debt.

A credit score is essentially a quick summary of your credit report. Your credit score gives lenders a short snapshot about your payment history, how much credit you have, and how much credit you use.

There are several different credit scores out there. The most commonly used scores are created by FICO and are reviewed by credit card companies, auto loan lenders, mortgage companies, and more. FICO credit scores range from 300 to 850.

  • Less than 579: Poor credit
  • 580-669: Fair credit
  • 670-739: Good credit
  • 740-799: Very good credit
  • 800 or higher: Exceptional credit

FICO credit scores are determined by five different factors:

  • Payment history: Lenders want to see that you make all of your payments on time and that all of your accounts are in good standing. Your payment history accounts for 35% of your credit score.
  • Amounts owed: When deciding whether or not to issue you a loan, lenders look to see how much of your available credit you use. The amounts owed affects 30% of your score.
  • Length of credit history: A longer credit history — or how long you’ve had credit accounts — boosts your credit. Your credit history determines 15% of your score.
  • Credit mix: Your mix of different types of credit accounts affects 10% of your credit score.
  • New credit: Lenders get nervous when they see several new credit accounts have recently been opened. New credit accounts for 10% of your credit score.

4 ways a credit card could increase your credit score

Depending on how you use them, a credit card could actually boost your credit score in several different ways.

1. It can help you establish a credit history

According to Prosperity Now, a nonprofit organization focused on creating economic opportunities, one in five Americans have no credit history or credit score. Without a score, they struggle to find lenders willing to work with them.

When you open a credit card — and secured credit cards may be a smart option for those with no credit — you start building a credit history. Over time, that history can help you establish good credit habits and earn a solid credit score.

2. It could build up your payment history

Your payment history is the biggest factor used in determining your FICO score. If you make all of your payments on time, you can establish a good payment history and boost your score.

If you’re worried about missing payments, consider signing up for automatic payments to have the money automatically deducted from your bank account.

3. You’ll have more available credit

Another factor that affects your credit score is your credit utilization, a ratio that shows how much of your available credit you use. The less credit you use, the better the ratio.

When you open a new credit card, you increase your available credit. That change can cause your credit utilization ratio to go down, which in turn leads to your credit score going up.

However, if you immediately start charging large balances to your credit card, your credit score may not increase. It’s important to manage your balances carefully; if you end up charging the maximum credit limit on purchases, you’ll use up your available credit. That can cause your credit utilization ratio to go up, damaging your credit.

4. You may have a better credit mix

When deciding whether or not to give you a loan, creditors want to see that you’re capable of handling different kinds of credit, such as loans and credit cards. Your credit mix — or the different types of credit under your name — accounts for 10% of your credit score.

When you add a credit card to your credit report, you could further diversify your credit. Having access to another account may improve your credit mix and boost your credit score.

How a new credit card could temporarily ding your credit score

While opening a credit card account can help your credit, there are some risks.

When you submit a credit card application, for example, the company will perform a credit inquiry on you. Each credit inquiry can reduce your credit score by as many as five points. To avoid this problem, only apply for a new credit card when you really need it and don’t apply for several new credit cards or loans in a short period of time.

Your credit score is also affected by how long you’ve had accounts open. The longer you’ve had accounts in good standing, the better.

Opening multiple new accounts within a short period of time can lower the overall age of your credit, potentially causing your score to go down.

Managing your credit

Opening a new credit card can be a smart move. You’ll get the convenience and ease of using plastic to complete transactions, and you can even earn valuable credit card rewards and benefits.

If used wisely, having a credit card could even increase your credit score. To maintain a good score, make all of your payments on time and monitor your credit report to ensure there are no errors.

Discover®️ Cashback Debit Benefits

  • Earn 1% cash back on up to $3,000 in debit card purchases each month1
  • No minimum deposit, no minimum balance, and no account fees
  • Access your paycheck up to 2 days early with Early Pay
  • 60K+ fee-free ATMs and make cash deposits at Walmart stores nationwide

Author Details

Kat Tretina

Kat Tretina is a personal finance expert focusing on practical financial matters, including student loans, debt repayment, side hustles, insurance, and healthcare. Drawing from her personal experience, she aims to simplify complex financial topics and provide individuals with the information they need to make informed decisions.