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How to Use a Credit Card to Build Credit

When you get a credit card, learning to use it wisely can potentially become the best way to build a fool-proof credit history. Having a good credit score matters a lot towards building stable financial health. A strong credit score implies a better credit card interest rate when you want to take a car or home mortgage loan. It also helps rent an apartment because your landlord may want to check your credit score, as a formidable score implies better capacity for loan repayment. 

In the case of debit cards, while they are convenient, they are of no help in building your credit history. They do not involve credit and you are just spending your own money from your savings. 

Given below are a few easy ways to use a credit card for building credit.

Start by getting a credit card

To start building your credit, simply get yourself a credit card that will be solely for your own usage and familiarise yourself with how to pay the credit bill every month. Although getting a credit card with reasonable interest rates can become a problem without a history of credit card usage. There are a few companies that issue credit cards for college students, but these come with a requirement of having a fixed and trustworthy source of income, which is not very regular among college students because many may not be working for jobs as yet. If you are still a student, then there is another way around this. You can become an authorised user on your parent’s existing card (or issue a new credit card in your parent’s name). While that is a good start to building credit, if your parent is unable to maintain their credit score every month, it will hamper the process of credit building for both you and your parent. The primary account holder is always responsible for maintaining their balance, regardless of who incurs the charges. The bottom line is, make sure you understand and calculate your monthly expenditure using the credit card. If you are a salaried individual, calculate your repayment ability before deciding to get a credit card.

A secured card

This is a credit card secured by the deposits made on your bank account that exists mainly for this purpose. The limit of credit on a card is determined by the amount of the bank deposit made. Credit cards that are secured tend to limit the risks of the lender and also helps some users bring down the tendency to overspend using an unsecured credit card. When your bank reports your payment routine to the credit institutions while your credit score is formidable, you get eligible to apply for the usual credit card that does not require security after six months depending upon the bank policies. Once you demonstrate your capability of paying instalments or paying credit bills on time, your secured card lender might be willing to upscale you to their regular cards. Regular cards do not have any such security scheme. You should compare the annual fees and additional charges on any cards that you wish to acquire.

Make an application for a store-based credit card

As previously mentioned, acquiring a credit card may become a tedious job for someone with little or no credit history so there is an option to apply for a store-based credit card, which many retail shops offer for usage in their own stores. These cards are much easier to obtain for people without a credit history. Their interest rates are higher than average, but that will not pose a problem if you are running low on balance or paying it in full within the monthly billing cycle. This card will benefit you with many discounts, deals, and cashback offers depending upon card to card or the different types of stores with varying policies. 

Monitor your credit usage

It is essential to keep track of when, where, and how you use your credit cards. Keeping your usage confined to the necessities will help save your money. When your balance is more, you can avail of more and more offers, discounts, and cashback. But using them only when required will help you preserve your balance and increase your credit score. There is no specific credit utilisation rate, but 10% is relatively advisable to build the best credit score. Consult with your account manager to provide you with an insight on how to manage your savings and maintain a healthy CIBIL score.

To sum it all up, there is a need to be practical and careful about expenditures on a credit card. As easy and lucrative as getting your own credit card and splurging on shopping with all the great discount offers on display, it is important to document your spending and be pragmatic about it. This will help to avoid debt on credit card bills and build a good credit score.

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