It is good when using a credit card to build a strong credit history. But, how to use a credit card to build credit? Don’t be concerned; everything is covered in this article. Hanfincal (hanfincal.com) can assist you in figuring it out.
1. How long does it take to build credit?
It takes three to six months to build your credit. However, to build a good credit score, at least 670 according to the FICO scoring model, the time it takes varies.
2. How to use a credit card to build credit?
To use a credit card to build credit, you can do 8 ways below:
2.1. Check your credit score & report regularly
Regular checking of your credit score can help you improve your credit score by finding out errors on your credit report and making a dispute file to credit bureaus.
2.2. Pay on time and in full
Paying on time and in full is one of the best ways to use a credit card to build credit because your payment history accounts for 35% of your FICO credit score. Payment in full also helps you to avoid interest charges.
In case you make a late payment after 30 days, a creditor can report your account to the three major credit bureaus, which can significantly impact your credit score. So, if you cannot pay your total statement balance, pay what you can and make at least the minimum payment on time.
2.3. Keep your balance low
Your credit utilization ratio, also means the amounts you owe or your balance, account for 30% of your FICO score. To boost your credit score, you should keep your balance on a credit card at 30% or less.
Limiting your credit card use, especially if you have a low credit limit, may help you keep your utilization rate low. In addition, you should make the payments fully and only before the end of your statement period, about 21 to 25 days before the bill’s due date.
2.4. Keep accounts open
Your credit history length accounts for 15% of your FICO score. By keeping your account open, especially the oldest credit cards, you can maintain a long credit history, which will raise your credit score. Your credit history will be cut short if you close those old credit cards, and your credit score may reduce.
Consider carefully when you open a new credit account or close an old one because your account’s average age decreases, and your credit score will decrease.
2.5. Avoid getting too many credit cards
Having too many credit cards is hard for you to remember all of the payment deadlines or buy more than you can afford. In addition, every application for a new credit card may lead to a hard inquiry on your report, which drops your score.
2.6. Apply for a store card
People with little or no credit history will easier to get a store card to start building their credit than taking a standard credit card. They feature higher-than-average interest rates, but that won’t matter if you have a modest amount or pay it off in full at the end of each billing cycle.
2.7. Consider a secured card
A secured card is issued by a cash deposit you make upfront; the deposit amount is typically the same as your credit limit. How to use a secured credit card to build credit? If you make all of your payments on time, you’ll have a favorable payment history. And if you leave your card active for a long enough period of time, you’ll build up a substantial credit history.
Secured credit cards are not intended to be used indefinitely. The goal of a secured card is to build your credit history enough to qualify for an unsecured card, which does not require a deposit and offers better benefits.
2.8. Become an authorized user
The simplest strategy to build credit is to become an authorized user. By doing this, you can add the other credit card payment history, which is account for 35% of your score, to your credit report.
A family member or others may be willing to add you to their card as an authorized user, but you should consider a primary user with a long history of timely payments.
Bear in mind that becoming an authorized user can help you build credit and improve your own score, it also can impact your credit score if a primary user missed payments.
How to use a credit card to build credit? If you have not yet been eligible for a regular credit card, secured cards, student cards, and store cards can help you start building your credit. Building credit for the first time takes at least six months, but good credit can take even longer. If you want to obtain sound financial advice, don’t forget to leave your email address to stay in touch with Hanfincal (hanfincal.com). We can work together to handle your problems.
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