How to use a credit card to build credit

Advertiser Disclosure: Content provided by Red Ventures. Fox Business and its content partners earn compensation from the affiliate companies that appear below. This content does not include all available financial offers, and compensation may impact how and where links appear in the content.

Do you want to buy a house or car someday? Qualify for the best loan rates? Even rent an apartment without a big deposit? Your credit score holds the key.

Your credit score influences nearly every aspect of your financial life. A high credit score saves you money by qualifying you for better loan rates. On the other hand, poor credit can cost you thousands in higher interest payments.

Luckily, small habits with your first (or current) credit card can boost your credit over time. Here are six key ways to build your credit score with a credit card.

Choose the right starter credit card

If you don’t have a credit card or have poor credit, you still have some options. Starter credit cards are designed for those just starting out — they can help you build credit and get comfortable with using credit.

Here are four key factors to consider when picking your first card:

1. No annual fee: Avoid cards with annual fees so you can keep the account open long-term without extra costs.
2. Rewards: Consider cards offering cash back or points on everyday purchases.
3. Interest rates: While you should try to make payments on time to avoid debt, it’s still smart to compare rates and find a card that charges lower-than-average interest.
4. Lower credit limits: Opt for cards with lower limits if you’re starting, as this reduces the temptation to overspend. Many issuers will raise your limit later as you use your card responsibly.

The best cards with no annual fees offer rewards in everyday spending categories like groceries or gas. This makes it easy to align your spending with your card’s perks.

If your credit score needs work, consider a secured card. These require a refundable security deposit that becomes your credit limit. Making on-time payments with a secured card builds your credit like a regular card.

Most secured cards let you graduate to an unsecured card and get your deposit back after a certain amount of time with on-time payments.

If you’re a student, you may want to consider a student credit card, designed for college students. These cards come with lower credit limits and higher approval odds. They may allow you to upgrade to an unsecured credit card after graduation.

Build credit with these 3 card habits

Once you have a card, focus on building credit with three simple payment rules.

1. Pay your balance in full each month 

Payment history is one of the most influential factors on your credit score. This means paying your balance in full is a crucial way to build credit.

Paying your balance in full helps you avoid interest charges and keeps your account in good standing. Consider setting up autopay on your credit card account so you won’t forget to make a payment.

2. Never pay more than 30 days late

If you miss a payment, get caught up before hitting 30 days late. While you still may owe a late payment fee, paying within the month will keep the delinquency off your credit report.

“At 30 days late, the payment will still be reported as an on-time payment; at 31 days late, it will be reported as a late payment that will materially lower your credit score for the next seven years,” says Erik Beguin, CEO and founder of Austin Capital Bank.

3. Use less than 30% of your total credit limit

Your credit utilization is how much available credit you’re using. For example, if your credit card limit is $10,000 and your balance is $2,500, your credit utilization is 25%.

It’s a smart idea to keep your utilization below 30% — going over that can be a red flag to lenders and a sign that you may be overextending yourself.

Stick to these rules, and your credit score will steadily improve month after month.

Other tips to maximize your score

Once you have the basics down, try these additional tips to supercharge your credit:

• Ask for credit limit increases every six months. The higher your credit limit, the easier it is to maintain a low credit utilization.
• Set up alerts for unusual account activity so fraud doesn’t tank your score.
• Check your complete credit reports quarterly and dispute any errors you find.
• Become an authorized user on a spouse or family member’s card. Their payment history counts for your score (so choose an account with good standing).

Finally, you’ll want to keep an eye on your credit reports. Many bank accounts today will give you access to your up-to-date credit score from one of the bureaus via your online account.

This way, if you notice a dip in your credit, you can quickly find out why and dispute the error or make a needed payment.

Graduating to better rewards cards

Once you build your base credit score to the 680+ range, consider “graduating” your starter card to a premium rewards card. Cards for excellent credit offer more cash back and travel perks.

With your now-strong credit profile, you’ll qualify for the good stuff like:

• Cash back credit cards offering up to 6% in popular spending categories
• Travel credit cards that unlock airport lounge access, free hotel nights, and enhanced travel protections
• Increased sign-up bonuses, often worth $500+
• Premium benefits like airport lounge access and rental car insurance

Set spending alerts and autopay on new cards to enjoy the perks without getting over your head. Think of graduating cards as the fruits of your credit-building labor.

How fast can you build credit with a credit card?

Building your credit takes time and effort. Using a card responsibly and making on-time payments can boost your score quickly. With responsible habits, you can build solid credit with a credit card in around six months.

Here’s an example of a timeline:

• 1-3 months: Open a secured credit card, keep your utilization low, and maintain a strong payment history
• 3-6 months: Apply to graduate to an unsecured card, keep your utilization low, and continue making regular, on-time payments
• 6+ months: At this point, you may be able to apply for a better rewards card. Just remember to keep up your responsible card habits.

Alternative credit-building tools

A secured card is a great way to jumpstart your credit-building journey with less risk. But credit cards aren’t your only option. Consider these alternatives:

• Credit builder loans: These loans function like secured cards but require making fixed monthly payments into a savings account. On-time payments are reported to credit bureaus while your money earns interest in savings.
• Bill-reporting services: Some services, like Experian Boost, will report your timely utility or internet payments to credit bureaus each month. It’s a great supplemental way to build credit with payments you already make.

The bottom line

Credit cards offer a convenient — yet powerful — way to show financial responsibility to credit bureaus – if used carefully.

You don’t need a huge credit limit or a fancy credit card to build strong credit. With the right starter card and diligent payment habits, anyone can build excellent credit.

Editorial disclaimer: Opinions expressed are author's alone, not those of any bank, credit card issuer, or other entity. This content has not been reviewed, approved, or otherwise endorsed by any of the entities included in the post.