How to Use a Credit Card to Build Credit: 10 Smart Ways

Building credit is pivotal to financial stability, and using a credit card responsibly is an effective way to do so. The purpose of this blog will be to guide you on how to use a credit card to build credit. The information discussed will improve your ability to improve your credit score and seek out better opportunities regarding finance. A great credit score may enable you to secure favourable loan terms. Therefore, it’s imperative to know how to handle a credit card. Before going into the specific steps, let us explore why you need to build credit and how a credit card can be at the centre of this process.

ALSO READ: What is a credit score? How does it work?

1. Choose the Right Credit Card

The first step to mastering how to use a credit card to build credit is to locate your card. Certain cards are designed to assist people in building their credit. For instance, secured credit cards ask for a deposit as an assurance or collateral to make the cards accessible to people who have no credit or bad credit. Getting the right credit is the first step to building up your credit and laying a foundation for your credit history.

2. Make Payments on Time

Pay credit card bills on time. Late payments have a detrimental impact on your credit score. Either use automatic payment options or set reminders so that you may not miss a due date. Additionally, paying more than the minimum amount due can reduce interest costs and improve your credit score faster, thereby enabling you to leverage your credit card to build credit.

Also Read: How to Convert Credit Card Payment to EMI?

3. Keeping Low Credit Utilisation

Credit utilisation is the percentage of your credit card limit that you are using. Aim to keep this less than 30%. High credit utilisation indicates financial distress, thereby lowering your credit score. Therefore, it is crucial to regularly review your spending and make sure that it doesn’t get too out of hand.

4. Using Credit Regularly

Use your credit card regularly to help your credit score. Make small, manageable purchases and pay them off each month. This shows that you are responsible when it comes to credit. However, remember maxing out your card will hurt your credit utilisation ratio.

5. Avoiding Unnecessary Credit Applications

Whenever you request credit, a hard inquiry is noted on your credit report. Too many of these enquiries in a very short period may result in a low credit score. Apply for credit only when necessary. The best hack for using a credit card to build credit is to space out the applications as much as possible to reduce the negative effects on your score.

6. Checking Your Credit Report

Keep checking on your credit report. This keeps you updated with regard to what is taking place with your credit and also allows you to point out errors. You can get a free copy of the credit report from credit bureaus. A crucial step is to correct such inaccuracies in time to avoid hurting one’s score. You can keep an eye on your credit scores using the OneCard app.

ALSO READ: What is Minimum CIBIL Score for Credit Card?

7. Keeping Old Accounts Open

The length of your credit history deeply impacts your credit score. To retain a longer credit history, keep old accounts open. Even if you haven’t used an old card in a while, keeping it open will still help your score. Just ensure there are no annual fees associated with the account.

8. Diversifying Your Credit Mix

Having a mix of credit types can improve your credit score. These include credit cards, loans, and a mortgage. Lenders want to be sure that you are capable of handling a variety of credits. However, do not take on unnecessary debt. Only use those credit products that meet your financial requirements to enable your credit card to build credit.

9. Managing Debt Wisely

Managing debt is crucial when using a credit card to build credit. Never carry a balance on your card that you can’t afford to pay off in a couple of months. Large amounts of debt will hurt your credit score and general finances. One Credit Card’s Budget Planner can be a handy tool for this purpose.

10. Credit Building Tools

There are also some tools and programs that may help you in building credit. For instance, credit-builder loans are loans structured to help people build credit. Such loans report your payments to the credit bureaus, thus building your credit history.

ALSO READ: How To Use Your OneCard to Build Your Credit Score

Conclusion

Good credit is, therefore, of paramount importance for a number of reasons. Knowing how to use a credit card to build credit is important for long-term health in finance. Remember, strong credit scores are the keys that can open a lot of doors. Keeping this in mind, such steps will help you glide smoothly to a high degree of freedom and security financially.

FAQs

1. How should I use my credit card to build my credit?

Use your card regularly for small purchases, make timely payments, and keep a low credit utilisation below 30%.

2. How often should I use my credit card to build good credit?

Regularly, but moderately. Make small monthly purchases to show consistent, responsible use without maxing out your limit.

3. What percentage of my credit card should I use to build credit?

Keep credit utilisation under 30% of your limit. This shows low-risk behaviour and positively impacts your credit score.