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Key takeaways
- Raising your rating with a credit card is one of the easiest and most effective ways to do it.
- Consistently making payments on time and keeping your utilization low demonstrates financial reliability and positively impacts your score.
- If you don’t want to use plastic to pay, there are other ways to boost your score including credit builder loans and payment reporting.
Building credit with a credit card is one of the most common and easiest ways to raise your score quickly. All you have to do is use your card regularly and responsibly. Pay all your bills on time every time and only spend a small percentage of your credit limit. You’ll demonstrate that you can manage borrowing and repaying money on a regular basis. Keep this up and your score will shoot up.
We’ll go over in detail how to raise your rating with a card and what to watch out for.
How to start building credit with a credit card
Issuers report your payment history and usage to the three major credit bureaus – Equifax, Experian, and TransUnion. They put the data on your credit reports which are used to calculate your three-digit scores. Use your card responsibly and you’ll be able to establish a positive payment history relatively quickly.
To start improving your score with a card you’ll first need to get one. The type you get will depend on your score, among other factors. If you have a good score, you will have your choice of cards. If your score is poor, you may want to opt for a secured card and use it to establish a positive payment history. Another option is to go for an unsecured card for poor scores. Many issuers offer unsecured cards to designed to help build up your rating. If you don’t want your own card, you can become an authorized user on some else’s card.
We’ll go over the choices below.
Secured credit card
Secured cards require a refundable security deposit that sets your limit. The deposit can be as low as $100 or as high as $5,000. It depends on the issuer. Secured cards are a good choice if you have a bad score because they are easy to qualify for and often have lower fees and APRs than unsecured cards for poor scores. Other than the deposit, they work just like regular cards.
Make sure your issuer reports to all three credit bureaus.
Unsecured Credit Card
If you don’t want to put down a deposit, you can apply for an unsecured card specifically designed for those with low scores. A card in this category will often come with extra fees, a higher interest rate, and a low limit.
Use it responsibly to boost your rating, always pay your bill on time, and you can move onto a better card.
Become an authorized user
Ask a trusted friend or family member if you can be an authorized user on their card. Make sure the primary cardholder has a good score. That way your score then benefits from their responsible use.
Make sure that the credit card company will report your usage to the three credit bureaus as an authorized user. This is the only way it will help you build up your score.
Know your credit scores
It’s important to know your scores so you know where you stand. Your scores affect your ability to obtain loans, mortgages, and even rent an apartment. They are a measurement of how responsible you are. Namely, if you can be counted on to repay what you owe as agreed. Having a good score increases your chances of getting approved for a new credit card account with a lower interest rate and a higher limit in the future.
There are multiple scoring models. The main one used by the majority of lenders is FICO. Your FICO score is calculated by weighing the following factors:
- Payment history – 35%
- Utilization – 30%
- Length of credit history – 15%
- Types of accounts – 10%
- New inquiries – 10%
Check your credit reports and FICO score at AnnualCreditReport.com. Look and see what you’re doing that’s keeping your score down. Have you only had accounts for a short time? Have you made a lot of late payments? Are your balances too high?
Now that you know what you’re doing wrong and what goes into calculating your score, you’re ready to raise your rating.
What are the best ways to use a credit card to build credit?
There are multiple proven strategies for using credit wisely while improving your credit score. We’ll go over a few to get you started.
Use only the credit you need
It can be tempting to use your card for everything but don’t. Only pay with plastic what you can afford to buy in cash. That way making on time payments will be a breeze.
What is your credit utilization ratio?
Your utilization ratio is your current balance compared to your limit. To determine your utilization ratio, divide your balance – what you’ve spent – by the total limit. This is important on all your cards cumulatively and individually.
For example, if you have a total limit of $10,000 and are now spending $2,000, your utilization ratio is 20%. That’s a good place to be.
You want to keep your credit utilization ratio low to enhance your score. Try to keep it under 10% – but above 0%. 10% can help you improve your score fast but it can be hard to do, especially if you have a low limit. A general rule of thumb is to keep your rate below 30%.
Pay off the balance in full each month
The best way to build credit with a credit card involves paying your bill on time. Set up automatic payments to ensure you never miss a due date as payment history is a critical component of your score. Always pay more than the minimum payment – the entire balance if you can. This way you’ll never be charged interest.
Tired of being denied the credit card you want?
Credit card management tips
Responsibly using a new card can have a positive impact on your score, but exactly how much will a credit card raise your score depends on your consistent payment behavior and utilization rate. To keep your score going up, follow these tips.
New
1. Never pay late
Always pay your bills on time. Late payments can drag down your score and stay on your credit report for up to seven years. More recent late payments will hurt your score more.
Set up autopay or reminders so that you never miss a bill. If you think you’re going to be late, call your issuer as soon as possible. A lot of times they won’t report until a payment is over 30 days late.
2. Always pay in full
You should make it a habit to pay off your bill in full every month for two reasons. First, you can save a lot of money on interest charges if you pay off your entire statement amount by the due date on your account. As of November 2023, statistics from the Federal Reserve on accounts that charged interest showed that the average interest rate is 22.75%. Some cards may also have higher APRs than the norm. It’s wise to make an effort to avoid these high interest costs.
The second reason is your utilization rate. Paying your entire balance will lower your usage rate. As we said earlier, a lower usage rate helps establish a better score.
3. Don’t apply for too many new accounts at once
Only apply for credit accounts you need. Every time you submit an application, the financial institution will do a hard inquiry which will temporarily lower your score. Your score should only drop by a few points and bounce back within a year. One hard inquiry isn’t a big deal, but a lot at once can do damage.
Go to MoneyFor for more tips and tricks.
How to build credit without a credit card
It is possible to raise your rating without a card. While they make it easy to improve your score, you do have to be careful and responsible or you can go into debt. Luckily there are alternatives.
Credit Builder Loans
One option is a credit builder loan that lets you improve your score and save money at the same time. With this loan, the borrower doesn’t get the money immediately; instead, the financial institution holds on to it and puts it in a savings account. The borrower makes monthly payments until the loan is paid off in full. The lender reports the monthly payments to the credit bureaus to boost the borrower’s score. After they’ve made their last payment, the lender gives the borrower the loan money, minus any fees owed or plus interest earned depending on the loan.
Credit builder loans aren’t free, but some can be affordable. Like with any other loan, compare the fees and policies of different lenders. Before applying, you should also ensure that the lender will send the credit builder loan payments to all three credit bureaus. Reporting payments is the only way the loan will help you improve your score.
Report ALL your monthly payments
Reporting other monthly payments can provide opportunities for people with a limited history or or poor scores to raise their rating. A lot of companies will report rent, utility, phone, and subscription payments. This way people can get improve their scores with bills they are already paying.
It’s a useful service if you’re wary of borrowing money and going into debt or want to give your score an additional boost. As always, make sure that the service reports to all three credit bureaus. Then continue to make on time payments as any reported late payments can hurt your score.
Pay your monthly bills and improve your score.
No deposit – No interest – No debt
Use a debit card that reports payments
You can use certain debit cards to improve your score. Most of these debit cards function like secured cards without a security deposit. They report your payment activity to credit bureaus, allowing users to establish a positive payment history.
Most of them work by connecting to your bank account. The card company then sets spending limits based on your bank balance and history. You can spend within your spending limit. Most cards will debit the money directly from your account so you don’t have to worry about paying a bill – check with your issuer to make sure they do this. Then the issuer reports your payment activity to the credit bureaus.
Many of these debit cards do charge fees like an annual fee. It’s important to review the terms and conditions to understand the fees and if they fit your budget.
These cards can be helpful because they do not involve borrowing money and so there’s no chance of going into debt. Instead, they focus on helping you raise your rating through responsible use of a debit card. That said, they are not as effective as credit cards at improving your score.
Bottom Line
Hope you got answer of the question of how much will a credit card raise my score. Cards are a convenient payment system that can also boost your score when used responsibly. But remember that they can be good or bad for you in the long run, depending on how you use them.
They can help you raise your rating if you only use a small percentage of your limit and pay off your amount in full monthly. But if you think it will be hard to control how much you use them, you should try a different way to improve your score for now.
There are plenty of other options if you want to avoid debt and borrowing altogether. Ask be an authorized user on a friend or family member’s card. Take out a credit builder loan. Or report all your monthly payments. Figure out what works for you and boost your score.
