8 Ways to Build Your Credit with a Credit Card
I was able to start building my credit at a young age thanks to my parents. In this article, I lay out the ways I started building my credit score through opening a credit card. I've gathered some tips and links for first timers.
1. Research the right credit card.
Take your time to research the credit card with the most benefits. Keep an eye out for cards with lower interest rates and no annual fees. A rewards-type credit card may seem more appealing, but for your first credit card, a low interest card will be the most beneficial for you in the long run. The higher annual percentage rate (APR) and possible annual fees won't be worth it when you start paying back the money you've used. Consult your bank. Ask questions.
2. Apply for your own credit card.
Once you've picked out the card that is best fit for you, start gathering the information needed to apply. Think proof of income or keep your balance in your checking account steady.
3. Don't apply for multiple credit cards at once.
Don't get carried away and apply for a bunch of cards at the same time. Applying for too much credit in a short amount of time and your FICO score will plunge. To companies, it suggests you're a risky borrower and will make them wonder why you need so many cards. Having one card for now is enough to start building your score. Apply for another one once you established a routine, and have built up your credit.
4. Occasionally, use the card for small purchases.
For example, put purchases like groceries, gas, or monthly subscriptions on the card. Anything you won't have a difficult time paying back at the end of the month is advised to use your credit card for.
5. Avoid large purchases, except for emergencies.
Relating back to #5. Using the card in small amounts will allow you to have a larger fund for things you really need. Keeping the debt on your card low will save you in case of emergencies.
6. Keep your utilization ratio at 30% (some say 50%, some say 10-20%).
The ratio is said to make up about 30% of your credit score. To keep a strong and steady score, try to keep your balance at less than half of the available credit line. Some advisors say to only use 10-20% of the available credit, but let's be real... Younger people are probably getting a credit card to spend money. With that being said, keeping the balance below 50% is ideal, but below 30% is the smart way to go.
7. Pay off the balance each month, on the same date.
To start building good credit, try to pay your card on the same date every month. For example, if you balance is due every 3rd of the month, but you like to pay it on the 1st of the month, then pay the balance every 1st of the month. Try your best not to carry a balance over to the next month. If you're only using the card for small purchases, you should have no problem paying it off the following month ;)
8. Don't close your credit card.
If you decide you no longer want your credit card open, try to refrain from closing it. Instead, keep the balance at $0 or at a bare minimum. You're trying to build up credit to eventually apply for a loan for a car or mortgage. Closing the card won't help that as it won't show a positive credit history on your report.
Credit Card Tip 1: Paying off the balance avoids you having to pay interest.
Credit Card Tip 2: Start with major credit card companies. I chose mine through whom I bank with.
Credit Card Tip 3: Avoid department store credit cards as your first Card. They'll potentially have higher interest, and you won't be able to use it anywhere else but the store.
Remember to be responsible.
Below are links to further your knowledge about credit cards and credit scores.