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How to Build Credit with Credit Cards

Woman Holding Two Credit Cards, Demonstrating Financial Independence

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Credit Sesame explains how to build credit with credit cards.

Can you really build credit with credit cards? You bet.

But you can also harm your credit score if you misuse your plastic. We will cover:

  • How to build credit with credit cards
  • Best ways to build credit with credit cards
  • Tips to building credit with credit cards
  • Start building your credit with Sesame Cash — Credit Sesame’s secured credit card.

How to build credit with credit cards

Credit scoring technologies can look like black boxes. You know a whole lot’s going on inside, but you haven’t a clue what.

In some ways, that’s true. The algorithms that weigh every item on your credit report are incredibly complicated.

However, the rules those algorithms apply are simple and easy to understand. And, if you abide by them, you can build credit with credit card use. Here are the basic rules (we’ll go into detail later):

  1. Always pay your bills (including those from your credit card companies) on time
  2. Have enough credit cards to spread the load across your borrowing needs
  3. Apply for new credit cards one at a time with a few months between each application
  4. Don’t close credit card accounts unless you need to

Most of us can follow those rules providing we aren’t in big financial trouble. But some of us may struggle to achieve even the first and most important of them: Always pay your bills on time. If that’s you, discover how to build and stick to a household budget.

Best ways to build credit with credit cards

We promised we’d get into more detail on those rules, so let’s get on with that.

1. Pay promptly

There are two main companies that devise and build consumer credit scoring technologies, VantageScore and FICO. And they both agree that paying your bills on time is the single most significant factor in driving your credit score up or down.

For VantageScore, that alone makes up 40% or 41% of your credit score. And, for FICO, it’s 35%.

So this isn’t optional. If you want a high credit score, pay your bills promptly — every time.

2. Spread the load for your cards

For FICO, the second biggest factor in your credit score is the proportion of the credit limit you’re using on each card. That accounts for 30% of your score. It’s 20% for VantageScore.

Credit scores aren’t interested in the dollar amount of your card borrowing. They calculate only the current balance on each card as a percentage of its credit limit. This “credit utilization ratio” isn’t as complicated as it sounds.

Here’s an example. Suppose you have a card with a $10,000 credit limit. Here’s your ratio with different balances:

  • $0 balance = 0% ratio ($0 balance ÷ $10,000 credit limit = 0%)
  • $1,000 balance = 10% ratio ($1,000 balance ÷ $10,000 credit limit = 10% = 0.1 on your calculator)
  • $3,000 balance = 30% ratio ($3,000 balance ÷ $10,000 credit limit = 30% = 0.3 on your calculator)
  • $10,000 balance = 100% ratio ($10,000 balance ÷ $10,000 credit limit = 100% = 1 on your calculator). Your card’s maxed out

Chances are, you aren’t doing your score any harm if your credit utilization ratio is at or below 30%. But if you’re trying to improve your score, or are planning on applying for a big loan (a mortgage or auto loan, perhaps) soon, you should probably try to keep your ratio below 10%. That should boost your score.

Spread the load

One way to achieve this is to have more credit cards so you can spread your borrowing load across them. That’s what people with perfect (850) scores do, according to credit bureau Experian:

People with FICO® Scores of 850 carried an average 6.4 credit cards compared with the national average of 3.8 credit cards. When it came to credit card debt, however, Americans with perfect FICO® Scores owed less than half the U.S. average: an average $3,025 compared with the national average of $6,445.

By the way, it’s a myth that it’s good for your score if you carry a card balance. “Paying off your credit cards in full every month is the best way to improve a credit score or maintain a good one,” says one federal regulator.

3. Apply for new credit cards one at a time with a few months between each application

Imagine you hear from mutual friends that someone you know is calling around your circle asking to borrow money. You’d probably assume they were in financial trouble.

Well, credit card companies make the same assumption if you apply for several cards within a short period. Each application appears on your credit report, and your score could tumble.

Applying for any new credit causes a minor hit on your score. And, if your application is successful, your new account will also knock a few points off your score. That’s because part of that score is based on the average age of accounts, and every new one drags down that average age.

Don’t worry. Your score can recover from those small hits, often within a few months, providing you use the new account (and your existing ones) responsibly.

Of course, you should continue to apply for a credit card whenever you have a good reason. For example, you may wish to increase the number of cards in your wallet so you can keep your credit utilization ratios low. But, if you do, apply for these over a prolonged period.

4. Don’t close credit card accounts unless you need to

We’ve already mentioned that your score is affected by the average age of your accounts. Just as adding a new account reduces that average, so does closing a long-standing one. So keep old cards, even if you no longer use them.

The exception, of course, is when you’re paying an annual fee on a card that’s no longer delivering the benefits you want. By all means, close one of those — unless you’re about to apply for a big loan. In that case, wait until your mortgage closes or your car loan’s finalized before you act.

Tips to building credit with credit cards

Here are some tips that can help you build credit with credit card use:

  1. Set up autopay for your monthly bills, including those for credit cards. Consider making the payment a couple of days early so banking snafus won’t catch you out
  2. Zero your credit card balances whenever you can. If you can’t, keep your balances low
  3. Keep each card balance below 30% of its credit limit. Make that 10% if you’re actively building your score
  4. Check your credit score regularly — Checking your score yourself (through a third-party, such as Credit Sesame) won’t harm your score. It’s only affected when you apply for new credit. Doing this lets you see when your behavior is harming your score or helping it
  5. If you can’t get a credit card yourself, ask a family member or friend to make you an authorized user on one of their cards
  6. When your family and friends are reluctant to help, apply for a secured credit card

The process of building credit with credit card use isn’t complicated. But it can be tricky if you’re still deep in money worries. If that’s you, just do what you can. Every little bit helps. And, over time, you really can boost your score and gain access to less costly borrowing.

Start building your credit with Sesame Cash — Credit Sesame’s secured credit card

We mentioned a secured credit card as an excellent way to build credit. These are much easier to qualify for than a mainstream card because you don’t actually borrow any money. Instead, you deposit money into your secured card’s account and spend that.

So, it’s a lot like a debit card or prepaid card. However, there’s one crucial difference: Namely, your activity is reported to credit bureaus. And that means your responsible use of your secured credit card will allow you to improve your score.

There are many reasons why you might be unable to get approved for a mainstream card. Perhaps you have a “thin file,” which means you haven’t borrowed enough in the recent past for card issuers to judge how responsible a borrower you are. Or maybe you’ve been through some rough times financially that slashed your score. And now you’re ready to begin rebuilding your life and your score.

Naturally, we reckon our secured card, the Sesame Cash, is a great choice. With one of these, there are:

  1. No credit checks
  2. No fees — This is a time-limited offer
  3. Cash-back credits on several big-brand names (see conditions), including Uber, Uber Eats, Sam’s Locker, Home Depot and Foot Locker
  4. Free daily access to your credit score
  5. Regular reports to credit bureaus, allowing you to improve your credit score
  6. Points when you meet credit building milestones
  7. Easy-to-use smartphone app

Do you think a virtual Sesame Cash card would be helpful to you? Apply now!


Disclaimer: The article and information provided here is for informational purposes only and is not intended as a substitute for professional advice.

Peter Warden
Peter Warden has been writing for 14 years about personal finance, credit cards, mortgages and insurance. His work has appeared across a wide range of media, and he is an editor at The Mortgage Reports. He lives in a small town with his partner of 30 years.

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Get your FREE credit score in seconds.

By clicking on the button above, you agree to the Credit Sesame Terms of Use and Privacy Policy.

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