How to Build Credit with a Credit Card

Credit cards are a very useful type of credit tool, and when used wisely, they can help you build your credit. However, it’s important to manage credit card use, because credit cards can also be a route to debt if you misuse them. Here are four ways you can build credit with a credit card:

1. Open your first credit card account. If you have already established some credit history, look for a card with a low spending limit, which may be easier to qualify for if your credit history is limited. Make small charges that you can easily pay off right away, and pay the balance in full every month. This will help build a profile on your credit report of responsible credit use and reliable payment.
2. Get a secured credit card. If you have little credit history or negative history, it may be difficult to get a regular credit card. A secured credit card may be an option. Secured credit cards are usually tied to a savings account, and the limit on the card is typically the amount in the account or a percentage of it.
   Just as with a regular credit card, you build credit with a secured card by making responsible charges, keeping your balance low or at zero, and paying on time every month. Not all lenders report secured credit cards to the credit reporting companies, but the lender may be willing to convert the account to a traditional credit card after a certain period of time. You should ask these questions prior to deciding whether to open any account.
3. Open a joint account or become an authorized user. If you’re having trouble getting your own credit card, another option for building credit is to become an authorized user on someone else’s account, or to open a joint account with someone who has a good credit history. Parents may choose to help a younger person with little credit history by adding him or her to the parents’ existing credit card accounts as an authorized user, or by opening a new card jointly.For joint accounts, you are responsible for repaying charges on the card, and so is the other account holder. If you don’t repay money borrowed on a joint account, the joint cardholder will have to, or you’ll both feel the credit impact of late or missed payments.
4. Request a credit limit increase. After you have paid down your debt and decreased your utilization rate, or if your credit is already in good standing, you may consider asking for a credit limit increase from your credit card provider. Your credit utilization ratio is a comparison between the total amount of credit available to you versus the total amount you’re using, and it’s an important factor in your credit score.
   A credit utilization ratio of 30 percent or less is often considered good by lenders and others; the lower the ratio the better it is for your credit score. For example, if you have $1,000 of available credit, and only owe $200, your credit utilization ratio is 20 percent. Increasing your available credit can lower your credit utilization ratio and positively impact your credit score, as long as you’re careful not to charge up to your new limit. The lower your utilization rate is, the better your credit score will be.
   On the other hand, asking for a credit limit increase when you have high balances may not be the best approach, since it may be difficult to get a provider to agree to an increase and it could increase your risk for adding more debt if your spending is not managed properly. This in turn, would negatively impact your credit.