Using Credit Cards To Build Your Credit Score

Posted by Nick Niesen on October 29th, 2010

Even if you consistently pay rent, utilities, and phone bills without a problem, you could still be denied a simple loan if you do not have an established credit history. The key is to establish your credit history before you actually need that car or mortgage loan. A simple way to start building credit history, before you go in for that loan, is through credit cards.

A credit card is much simpler to obtain than a loan, and it is a good way to demonstrate to lenders that you are capable of being a responsible consumer. Anyone can build credit history, but the important part is to build a good credit history. A few simple tips will help ensure that you start building from a good foundation.

Don?t apply for every credit card offer you see
Applying for many credit cards within a small amount of time, even if you never use the card, or are not even accepted for the card, can damage your credit score. It is often a good idea to start with a bank or credit union that also takes care of your checking or savings accounts.

Don?t max out your card
Although most cards offered to people with no credit history will have low spending limits, avoid charging close to the maximum line of credit. Your credit score can be lowered just because you charge more than 30% of the limit. Also, using your credit card for small purchases will make it easier to pay off every month.

Make payments on time
Making late payments will lower you credit score and most likely incur extra charges or fees. Late payments can stay on you credit history for years, so do not leave your payment until the last second and risk a small problem turning into a large cost.

What if you are having a difficult time even being accepted for a credit card? Don?t worry; there are still ways of starting to build your good credit.

Borrow someone else?s good credit
You may ask your parents about adding your name as an authorized user of one of their credit cards. You will have to make sure that the lender will report authorized users not married to the primary card holder to ensure that this will add to your credit history. Also make sure that it is good credit that you are borrowing. Late payments and other problems will also be added to your credit history.

Secured credit cards
Some lenders will allow you to pay a deposit in return for a credit card. The credit limit of this card is usually the amount of the deposit. This allows the lender to be safe against any default, while you are gaining credit history. After building your history with a secured card, you are more likely to be eligible for a non-secure credit card.

In-store credit cards
Many stores have credit cards that can be used only at that particular store. This type of card is also reported to the credit bureaus and, therefore, is a way to build your credit history. Remember, do not get too many of these at once, or it can damage your credit score.

Getting a credit card is an easy step toward building your credit history. It is a manageable option for most people and does not require getting into debt to boost your score. If you establish a good credit history early, you will have it in place when you need it, saving you grief, and most likely some interest as well.