How to Use a Credit Card to Build Credit

Purposeful and responsible credit card use is an excellent way to build credit.

FICO and VantageScore are the two primary credit scoring models. Both models show that payment history is the most significant single factor in credit scoring. 

Keep this in mind as you begin using your cards to build your credit score.

Credit Cards That Can Help You Build Credit

Secured Credit Cards

Lenders extend credit in the form of secured or unsecured debt. With secured debt, the lender maintains something of value that represents the collateral. With a car loan, the lender will reclaim or repossess the vehicle if a borrower defaults on the agreement.

With a secured credit card, the lender uses a security deposit as a form of protection or collateral. Here, the borrower must provide a cash deposit upon opening the account, usually in the $200 to $500 range, which is an amount equal to the card’s credit limit.

Secured credit cards are often used by borrowers who lack a credit history or have poor credit. Responsible borrowers will make purchases and repay the balances on time each month. 

This plan is an effective way of building a credit history. With responsible use and time, cardholders often soon qualify for an unsecured credit card.

Student Credit Cards 

Most credit card issuers today offer accounts for college students. To qualify, applicants must usually provide evidence confirming their enrollment. Examples may include a student ID, transcript, or other documentation from the school. 

Unlike secured credit cards, these are usually unsecured accounts, making them more appealing. Capital One currently has three different types of student credit cards. They all have no annual fees and offer rewards.

The cards report to all three major credit bureaus: Experian, Equifax, and TransUnion. As with most student credit cards, the interest rates are high, ranging from roughly 19% to 29%. 

Thus, those using these cards to build credit should pay all or the majority of their balance off each month. 

Becoming an Authorized User on Someone Else’s Card

Another way of boosting your credit score involves asking a friend or relative to add you as an authorized user on their credit card. As an authorized user, you become eligible for making purchases using the card.

An authorized user is a secondary user that assumes no responsibility for payments. Yet, most card issuers report authorized users to the credit bureaus.

Most authorized users usually recognize a small, positive impact on their credit score.  Traditionally, cardholders added spouses or children as authorized users on their accounts. Often, this process is described as “piggybacking.”

Keep in mind that this strategy could backfire. For example, if the primary cardholder begins making late payments.  

What To Do After Getting Your Credit Card

Use Your Credit Card

After qualifying for a secured credit card or student credit card, you can begin to build credit with it. Use the card in retail stores or online for purchasing different types of products or services. 

Avoid the temptation to begin spending frivolously