How to build credit with credit card

Find out the right ways of using credit cars to build your credit score.

19 September 2022Douglas Crowley 4 min read
Credit cards are often perceived as a debt spiral or a bad way of managing finances. That’s because it is easy to go overboard with them and lose track of the spending, considering the high credit limits and high interest rates of most cards.   But when used correctly, credit cards can actually help you build credit and improve your credit score in the long run.  In this article, we take a look at the right ways of using credit cards to build credit scores:

Credit cards are often perceived as a debt spiral or a bad way of managing finances. That’s because it is easy to go overboard with them and lose track of the spending, considering the high credit limits and high interest rates of most cards.

But when used correctly, credit cards can actually help you build credit and improve your credit score in the long run.

In this article, we take a look at the right ways of using credit cards to build credit scores:

If you are looking to build credit, then you are either struggling with a bad credit score or you have no credit history at all. There are several ways you can solve this problem, including:

Secured credit cards

Secured credit cards require an initial security deposit for issuing the card. The security deposit can depend on your credit score and the type of negative information on your credit report, which has been preventing you from getting a new card.

Secured credit cards may have high late fees if you miss your payment due date. Although, you can expect to get a low interest rate and annual fees because of the upfront security deposit.

When you get a secured credit card, you can make it work for you to build credit by using it for regular transactions and making timely repayments before the due date.

Just like with any other line of credit, account activity for your secured credit cards is also reported by your lender to credit bureaus like Experian, Equifax, and Illion.

Positive information, such as on-time credit payments, shows your creditworthiness and improves credit scores. On the other hand, negative information like missed repayments, defaults, and unapproved applications can decrease your credit score.

Student credit cards

If you are a student with little to no credit history, a student credit card may be an excellent initial option.

Student cards have little incentives on purchase and low credit limits, but you can easily get approved as a student. They are a great way to build your credit before you even start earning a fixed income every month.

Become an authorised user

The simplest way to build your credit is by getting a credit card in your own name and paying it off each month. However, it might be difficult to get a card with affordable interest rates when you have no prior credit history or have a less than great credit score.

You can instead become an authorised user on your parent's or partner’s credit card. Once they apply for a separate authorised user, you will get another card under your name, although the credit account will still stay under their name. Making routine payments on the card can help build credit. But make sure you both agree on how much you can spend each month to avoid any issues.

Store credit cards

Apart from secured and student credit cards, you can also consider applying for store credit cards, especially if you have little or no credit history.

Store credit cards usually feature higher-than-average interest rates. This, however, should not bother you if you pay the minimum amount or pay it off in full at the end of each billing cycle. Some store credit cards are restricted to usage in a certain group of stores. But the biggest benefit of store credit cards is that they are easy to get approved for.

Credit cards affect credit scores and contribute ‌to building credit. Here are a few tips to use credit cards for building credit:

Avoid getting multiple cards

When you are looking forward to building credit with a credit card, the last thing that you want to do is get too many credit cards. Carrying more credit cards than you require will only tempt you to make more purchases since you also get a higher cumulative credit limit.

Too many credit cards also means staying on top of all the due dates, interest rates, and fees can become overwhelming. Missing even one payment can lead to extra interest and late fees. Therefore, you should make sure to consider the pros and cons of credit cards before you apply for one.

Make on-time payments

Repayments are one of the major factors that affect your credit score. Therefore, it's crucial to pay bills on time. Even if you can’t pay off the entirety of your credit card balance in a month, you should at least aim to pay the minimum payment to avoid late fees.

You can set up autopay on your account to pay off credit card bills on time if you keep forgetting about them.

Keep a low credit utilisation rate

Monitoring your credit utilisation ratio is another important step in building credit through credit cards. The more credit card limit you utilise, the higher your credit utilisation ratio gets. And a higher credit utilisation can directly affect your credit score.

It is recommended to use less than 30% of your credit limit at all times. If you are always stretched with credit, consider asking your card provider to increase the credit limit.

Use credit cards strategically

When you have been making timely payments and have noticed an increase in credit card limit, don't overspend on your credit cards. You can use credit cards strategically to build credit by simply keeping your balances low, applying for a credit card that you really need, and always paying on time.

Keep your oldest credit card accounts open

You should keep unused credit cards active so that you can take advantage of their longer average credit history and more accessible credit. The credit scoring models reward you for maintaining long-term credit accounts and only using a small fraction of the credit limit.

But closing a credit account can reduce your overall credit limit and increase the credit utilisation ratio–all of which can impact your credit score. That is why it's also always important to consider how cancelling a credit card can affect your credit rating before you close a credit account.

Building credit with a credit card cannot happen overnight, but following the tips mentioned above will also help your credit score rise over a period.

You can monitor the progress of your credit score for free online to understand how your credit card purchases are affecting your score.

With ClearScore, you get free access to credit reports and you can check credit score in just a few clicks.


Douglas Crowley  Image

Written by Douglas Crowley

Senior Partnerships Manager

Doug loves to work with lenders to get ClearScore users the best deals