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Using a Credit Card to Build Credit

Building credit with a credit card

Improve Your FICO Score with Smart Credit Management

There are many benefits to establishing and maintaining good credit. When your credit score is higher, you have access to better rates on loans and credit cards, lower insurance premiums, and more. A simple way to increase your credit score is by responsibly using a credit card. Once you find a credit card that fits your needs, you’ll see your credit score improve if you use it every month, pay off your purchases on time and keep a low credit utilization.

How it Works

One of the easiest ways to increase your credit is to open a credit card. If you are building your credit score from scratch, you’ll likely need to apply for a secured credit card. United Federal Credit Union’s U First Visa® credit card is ideal for people who want to start building their credit with a credit card.

After your new account is approved, setup automatic monthly bill payments so you never miss a due date. If you can, pay your full balance before the due date every month. Not only will it save on interest, but it will help increase your score by showing a record of on-time debt payments. Your payment history makes up 35% of your FICO credit score, which means paying on time and in full is a great step in improving your credit.

Another way to build your credit faster is to use less than 30% of the credit limit on your card. That means if your card’s limit is $1,000, keep your balance below $300 each month. FICO looks at how much you owe overall and your credit utilization (the amount you owe compared to your available credit) when determining a credit score. Using more than 30% of your available credit is a negative to creditors. Your credit utilization makes up 30% of your FICO credit score.

Other Ways to Build Credit

Just because you have a new credit card does not mean you need to use it in order to see the benefits. When you don’t make purchases on your card, the credit bureaus still receive positive information regarding your account. Not using your card will improve your credit score at a slower rate, though, than if you were making purchases and paying them off on time.

Another way to build your credit is to become an authorized user on another account. This method works for someone younger than 18 or if you aren’t able to get your own account. This option won’t build your credit as quickly as you could with your own card. When you become an authorized user, you have access to the account, but the account holder is responsible for making payments. Make sure the account holder has a good payment history before you sign on as an authorized user. On-time payments from them will positively impact your credit score, while late payments will negatively impact you.

Monitor Your Credit Score

Once you are approved for a credit card, keep the account open for as long as you can. Lenders want to be able to look back at your credit history and see you have a record of making payments on time. The length of your credit history makes up 15% of your FICO score.

As you use your new card, it is important to regularly check your credit score. You should be checking it at least once a year. Some websites offer free credit score checks online. Remember, checking your report will not negatively impact your score. You could find errors that are bringing your score down and by correcting those errors, you could improve your overall score.

The Bottom Line

Using a credit card is a simple way to help improve your credit score, if you manage your debt responsibly. While making on-time payments and keeping a low credit utilization can increase your score, avoid making mistakes with your new card. Overspending and not keeping up with your payments can negatively impact you. Make sure you are prepared to use your new card in a smart way that will help you meet your goal of increasing your credit score.

United Routing Number: 272484894

 

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Insured by NCUA. Equal Housing Lender – We do business in accordance with the Fair Housing Act and Equal Credit Opportunity Act. NMLS #471962.

If you are using a screen reader or other auxiliary aid and are having trouble using our website, call us at (888) 982-1400 for some help. All products and services available on this website are available at all United Federal Credit Union full-service locations.