How To Increase Credit Score With Credit Card

Increase Credit Score With Credit Card

We often encounter individuals who are looking to improve their credit scores but are unsure where to start. One of the most effective tools for building and increasing your credit score is a credit card. When used responsibly, a credit card can help you establish a positive credit history, manage your credit utilization, and demonstrate financial responsibility. Here are some ideas to guide you through the steps to increase your credit score using a credit card, and we also list some of the best credit cards for this purpose.

Understanding the Basics of Credit Scores

Before diving into how to use a credit card to improve your credit score, it’s important to understand the basics of credit scores and what factors influence them. Your credit score is a numerical representation of your creditworthiness, typically ranging from 300 to 850. It is calculated based on several key factors:

Payment History (35%)

Your payment history is the most significant factor in your credit score. It reflects whether you’ve paid your past credit accounts on time.

Credit Utilization (30%)

Credit utilization refers to the ratio of your current credit card balances to your credit limits. Lower utilization rates are better for your credit score.

Length of Credit History (15%)

This factor considers the age of your oldest credit account, the age of your newest account, and the average age of all your accounts.

New Credit (10%)

This includes the number of recently opened credit accounts and the number of hard inquiries on your credit report.

Credit Mix (10%)

Having a diverse mix of credit accounts, such as credit cards, mortgages, and installment loans, can positively impact your credit score.

Steps to Increase Your Credit Score Using a Credit Card

Now that you understand the factors that influence your credit score, let’s explore how you can use a credit card to improve it.

1. Make Timely Payments

The most important step in increasing your credit score is to make all your credit card payments on time. Payment history accounts for 35% of your credit score, so consistently paying your bills on time is crucial. Set up automatic payments or reminders to ensure you never miss a due date.

Set Up Automatic Payments

Enroll in automatic payments for at least the minimum payment amount to avoid late fees and missed payments.

Use Payment Reminders

Set up calendar reminders or alerts through your bank or credit card issuer to notify you of upcoming due dates.

Pay More Than the Minimum

Whenever possible, pay more than the minimum payment to reduce your balance faster and save on interest.

2. Keep Your Credit Utilization Low

Credit utilization, or the ratio of your credit card balances to your credit limits, is the second most significant factor in your credit score. Aim to keep your utilization below 30% to positively impact your score.

Pay Down Balances

Regularly pay down your credit card balances to maintain a low utilization rate.

Increase Credit Limits

Request a credit limit increase from your card issuer, but be careful not to increase your spending along with it.

Use Multiple Cards Responsibly

Spread your spending across multiple credit cards to keep the utilization rate on each card low.

3. Maintain a Long Credit History

The length of your credit history accounts for 15% of your credit score. Keeping older accounts open and active can help improve this factor.

Keep Old Accounts Open

Avoid closing old credit card accounts, as this can shorten your average credit age.

Use Older Cards Occasionally

Make small purchases on older credit cards occasionally to keep them active and prevent the issuer from closing them due to inactivity.

Be Patient

Building a long credit history takes time, so be patient and focus on maintaining good credit habits.

4. Limit New Credit Applications

Applying for multiple new credit accounts in a short period can negatively impact your credit score due to the hard inquiries generated. Each hard inquiry can slightly lower your score and remains on your report for two years.

Apply Only When Necessary

Only apply for new credit cards when you genuinely need them and when you are confident you meet the issuer’s requirements.

Check for Prequalification

Use prequalification tools offered by many issuers to see if you’re likely to be approved without a hard inquiry.

Space Out Applications

If you need to apply for multiple credit accounts, try to space out your applications to minimize the impact on your credit score.

5. Diversify Your Credit Mix

Having a diverse mix of credit accounts can positively impact your credit score. This includes a combination of credit cards, installment loans, mortgages, and other types of credit.

Add Installment Loans

If you only have credit cards, consider adding an installment loan, such as a personal loan or auto loan, to diversify your credit mix.

Use Retail Store Cards

Retail store cards can be an additional type of credit that helps diversify your credit mix, but use them responsibly.

Manage All Accounts Responsibly

Ensure that you manage all types of credit responsibly by making timely payments and keeping balances low.

Best Credit Cards for Increasing Your Credit Score

Choosing the right credit card can help you build and improve your credit score effectively. Here are some of the best credit cards for this purpose:

Discover it® Secured Credit Card

The Discover it® Secured Credit Card is an excellent option for those looking to build or rebuild their credit. It requires a security deposit, which acts as your credit limit, and offers cash back rewards on purchases. Discover reports to all three major credit bureaus, helping you establish a positive credit history.

Benefits:
No annual fee
2% cash back at gas stations and restaurants (up to $1,000 in combined purchases each quarter)
1% cash back on all other purchases
Free FICO score access

2. Capital One Platinum Credit Card

The Capital One Platinum Credit Card is designed for individuals with fair credit who want to improve their credit score. It does not require a security deposit and offers a straightforward way to build credit.

Benefits:
No annual fee
Automatic consideration for a higher credit limit after six months of on-time payments
Access to Capital One’s CreditWise tool for monitoring your credit score

3. Citi® Double Cash Card

The Citi® Double Cash Card is a great option for those with good to excellent credit who want to continue building their credit score while earning cash back rewards. It offers a generous cash back program and reports to all three major credit bureaus.

Benefits:
No annual fee
2% cash back on all purchases (1% when you buy and 1% when you pay)
0% introductory APR on balance transfers for 18 months

4. Chase Freedom Unlimited®

The Chase Freedom Unlimited® is another excellent card for those with good to excellent credit. It offers a robust rewards program and reports to all three major credit bureaus, helping you build and maintain a strong credit history.

Benefits:
No annual fee
1.5% cash back on all purchases
0% introductory APR on purchases for 15 months
Access to Chase’s Credit Journey tool for monitoring your credit score

5. OpenSky® Secured Visa® Credit Card

The OpenSky® Secured Visa® Credit Card is ideal for individuals with no credit history or poor credit who want to build or rebuild their credit. It does not require a credit check for approval, making it accessible to more people.

Benefits:
Variable annual fee based on creditworthiness
Reports to all three major credit bureaus
Flexible credit limits based on your security deposit

Conclusion

Using a credit card responsibly is one of the most effective ways to increase your credit score. By making timely payments, keeping your credit utilization low, maintaining a long credit history, limiting new credit applications, and diversifying your credit mix, you can improve your creditworthiness and achieve a higher credit score. Selecting the right credit card for your needs can further enhance your efforts, providing you with the tools and benefits necessary to build a strong credit profile. Remember, improving your credit score takes time and consistent effort, but the rewards of better financial opportunities and lower borrowing costs are well worth it.