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For years, I avoided credit cards. I was afraid of debt, so I relied solely on my debit card and cash. As a result, my credit was less than stellar, so qualifying for auto loans and other forms of necessary debt was tricky, leading to loan denials and high interest rates.
I know it can seem counterintuitive when debt is, generally, a pretty scary thing, but credit cards aren't the enemy. They can be powerful and useful tools. And if you use them wisely, you can actually improve your credit score with a credit card.
Building credit with a credit card
When you open a credit card account, the credit card issuer reports your card use and activity to the major credit bureaus: Equifax, Experian, and TransUnion. That report includes your current account balance, payment history, how much of your credit limit you use, and how long the account has been open.
Because the credit card company is continually reporting your card use, having a credit card open generates monthly data. So every month you make your payments on time or pay down your balance, you prove your creditworthiness more and more.
Credit scoring models, such as FICO and VantageScore, pull information from the credit bureaus to generate your score, which gets updated periodically.
Difference between FICO and VantageScore
FICO and VantageScore are the two main credit scoring models. They use the same data from the credit bureaus, but they weigh the information on your credit reports differently. For example, they both put the most weight on on-time payments, but FICO weighs credit utilization more heavily than VantageScore does.
Besides your credit card use, these scoring models also consider other forms of debt, such as auto loans and student loans. As a result, your score can differ by scoring model. The FICO model is more widely used by lenders, particularly for mortgages and auto loans, while VantageScore is often available for free through credit card companies or credit monitoring tools.
Using a credit card can affect your credit score in several ways beyond your payment history, like improving your credit mix or lowering your credit utilization.
Credit mix
Your credit mix (or "depth of credit" as VantageScore refers to it) looks at the type of credit accounts you use. Ideally, you should have a mix of revolving credit (such as credit cards) and installment loans (such as student loans or car loans).
When you open a credit card, you open a new revolving line of credit, which can improve your credit mix.
Credit utilization and available credit
Credit utilization, or available credit, is how much of your available credit you use at any time. For example, if you have a credit card with a $10,000 limit and your current balance is $1,000, your utilization is 10%.
In general, creditors want to see a credit utilization under 30%, but the lower your credit utilization, the better.
Opening a credit card can give you more available credit, which betters your credit utilization.
Building credit with a secured card
If you're building credit from scratch (like I did) or rebuilding credit after making some mistakes with credit cards before, a secured credit card can come in handy. These cards require a security deposit (usually ranging between $250 and $1,000), which serves as your credit limit.
Secured credit cards are some of the best credit builder cards since they take away some of the risk that comes with standard cards. While regular credit cards can be risky if you tend to make impulsive purchases, secured credit cards have tighter limits. You can only spend your deposit, which limits how much debt you can build.
As you make payments and manage your account, your credit card company reports your activity to the credit bureaus. Over time, a secured credit card can improve your score while giving you some useful guardrails, helping you qualify for unsecured cards further down the line.
How to choose a credit card for improving credit
It's important to keep these factors in mind when choosing a card.
- Fees: If you're new to credit and on a budget, skip the fancy, premium rewards credit cards or travel credit cards. While those cards may boast flashy perks, they usually have hefty fees. Instead, look for a card without an annual fee so you don't have to pay a fee just to carry the card.
- Credit reporting: Not all credit cards report to all three credit bureaus, which can limit their effectiveness in building your credit. Look for a card that reports to Equifax, Experian, and TransUnion.
- Credit limit growth: Many credit cards, particularly ones meant for those new to credit, have built-in schedules for reviewing your account and potentially increasing your credit limit. A higher limit improves your credit utilization. Just make sure you don't max out your card.
- Path forward: Many secured credit cards automatically review your account. If you establish a solid credit history, the issuer may allow you to graduate to an unsecured card.
Becoming an authorized user
If you're trying to improve your credit as much as possible (without taking on debt yourself), one option is to ask a parent or relative with a good credit score to add you as an authorized user to their credit card account. An authorized user can use the card to make purchases but isn't legally responsible for the debt.
The primary user doesn't even have to give you access to the card itself — you can still benefit by simply being added to the account for the following reasons.
- The account history shows up on your credit report: If the primary user has had the card open for years, that experience will show up on your own credit report, helping to improve the length of your credit history.
- It may have a higher credit limit: If your family member has a strong credit profile, they likely have a credit card with a higher credit limit than you could get on your own. As a result, the account can improve your credit utilization.
One warning: Being an authorized user can backfire if the primary user falls behind on their payments or maxes out their card.
Monitoring and maintaining your credit
Building your credit takes time and ongoing effort. Regularly checking your credit can help you spot errors or fraudulent accounts. If you find any issues, disputing them with the credit bureaus can protect your credit score and protect you from identity theft.
You can view your credit reports for free at AnnualCreditReport.com. However, these credit reports don't show your score. Instead, you can use free credit monitoring tools to track your score itself. What's more, many credit card companies offer credit score monitoring as a card perk.
As your score improves, you may need to adjust how you handle your credit. For example, it can be a good idea to open an unsecured card if you've been using a secured card so you have access to a higher credit limit in an emergency. Establishing good habits — such as paying off your balance in full and limiting your purchases — will help you maintain your credit for years to come.
FAQs
How can I improve my credit score with a credit card?
To improve your credit, use your card regularly for small purchases, such as gas for your car or your streaming subscription. Pay off the balance in full each month by the account due date. You'll avoid interest while getting credit for using the card and making timely payments.
What is the 15/3 rule for credit cards?
The 15/3 "rule" is a tip that's touted by some financial experts. It splits your payments into two: one 15 days before your payment due date, and another three days before it. The idea is that this method keeps your balance consistently lower, which may benefit your score.
While it may be beneficial, the impact will be relatively small. Instead, aim to make your payments on time every month without fail.
How can I get a 720 credit score in 6 months?
It's possible to obtain a 720 credit score within six months, but whether it's doable depends on where you're starting. Rather than focusing on a specific score, aim to improve your credit and establish good habits. Over time, those steps will pay off with a stronger score.
Bottom line
While avoiding credit cards does mean you'll avoid credit card debt, that may not be as smart a move as it sounds.
In today's world, you need to have credit to get credit, and credit cards offer the lowest bar for entry and one of the simplest, lowest-cost ways to establish (or rebuild) your credit history.
Secured credit cards are a good place to start since they limit the amount of debt you can accrue. But if you've already got a decent credit score and are just looking to improve it, try a no-annual-fee card for a no-cost way to keep working on your credit.
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secured Self Visa® Credit Card
Current Offer
May become eligible for a secured card by opening a Credit Builder account and having $100 or more in savings progress
Annual Fee
$25 (waived first year)
