Don't have credit or need to do some rebuilding? A credit card could help.

The key is choosing a credit card that fits your goals and credit profile. And from there, create an on-time usage and payment history to establish and strengthen your credit profile. 

How to use a credit card to build credit: 5 steps

Brent Weiss, CFP®, co-founder and head of financial wellness at Facet, says that before you learn how to use a credit card, you must understand “the importance of establishing healthy credit. Building healthy credit is quite literally essential to a solid financial foundation.”

Weiss acknowledges there’s often a stigma associated with credit card use. “A lot of people are afraid to use a credit card. They overspend, and they end up with a credit card balance, and it creates this vicious cycle [they] can’t get out of.”

However, with careful planning, mindful spending, and faithful bill paying, you can use a credit card to your advantage. Here’s how:

1. Decide which credit card to use

There are countless credit card options available that cater to different credit profiles and financial goals. However, if you’re new to credit (or just getting reacquainted with it), two options could fit your needs: becoming an authorized user and secured credit cards.

Becoming an authorized user of a loved one’s credit card could jumpstart or reinvigorate your credit profile. If the primary cardholder has good credit, your credit score can benefit by association (assuming the account’s activity gets reported to the credit bureaus). However, remember that your payment history will also reflect on your loved one’s credit.

A secured credit card could also be a good way to establish or reestablish your credit. With a secured credit card, you deposit the amount of your credit limit with the card issuer. Then, you use the card to make purchases just like an unsecured card and pay your monthly bill. 

There’s no risk to the bank because it can seize the funds on deposit if you don’t pay your bill. However, if you demonstrate sound financial habits with this card, the bank ultimately may be willing to issue you an unsecured card (which isn’t backed by your assets). You can also use your good payment history to apply for an unsecured card with better rates and terms with another issuer.

2. Make on-time payments

Several elements determine your credit score, but your payment history has the most significant impact.  The widely-used Fair Isaac Corporation (FICO) credit scoring model says your payment history accounts for 35% of your score. The VantageScore model (developed by the three credit bureaus, Experian, Equifax, and TransUnion) prioritizes this credit behavior and says it accounts for 41% of your score.

That means you must pay your credit card bill on time, every time. If you need help making on-time payments, set up automatic payments in your credit card account or add the due date to the calendar app on your phone.

3. Keep your credit utilization below 30%

Your credit utilization ratio tells credit scoring models and lenders how much of your available credit you use. For example, if you have a credit card with a $1,000 credit limit and a $400 balance, your credit utilization ratio is 40%.

Krista Phillips, EVP, head of Wells Fargo consumer credit cards, says, “There are no set rules on utilization, and they may vary from issuer to issuer, but mostly we say stay below 30% as a guideline.” Your best bet is to keep your credit card balance low (or at $0).

4. Use your card regularly

Phillips says banks want you to use your card regularly but within budget. Consider using your card to cover small, recurring expenses to keep monthly balances manageable. For example, charging your Netflix and DoorDash subscriptions to your account and paying off the balance month after month will show lenders you can handle credit responsibly.

5. Request a higher credit limit

If you’re ready for a higher credit limit, ask your card issuer for a credit limit increase. Your lender will review your file and either increase your limit or explain why you don’t qualify for additional credit. Since your finances likely won’t change overnight, Phillips recommends waiting at least six months to a year after initially receiving your card to make the request.

A credit limit increase will decrease your credit utilization ratio and demonstrate to others—landlords, cell phone companies, and more—that you’re a reasonable credit risk and have a track record of responsible spending.

Tips for using credit cards to build credit responsibly 

Once you have a credit card, it’s up to you to use it in a way that builds credit and not a mountain of debt. These tips can help you build credit with a credit card, slowly but surely.

Try to pay your bill in full every month

You should strive to pay your entire account balance off each month. That way, you don’t get stuck paying interest. Plus, you show your credit card issuer that you have no problem affording your payments. However, “if you can’t make your payments in full, ensure that you at least make the minimum payments on time or before your due date every month,” says Phillips.

Don’t look at your credit limit as a challenge

Your credit limit is the most you can spend, not the recommended amount. Unless you have no other choice, you should only spend what you can afford to pay off each month. That way, if you have a true emergency, you have your entire credit line at your disposal.

Monitor your credit card statements

You should check your credit card statement for errors or potential fraud each month. As a best practice, review your bill line-by-line before you submit your monthly payment.

If you spot a mistake, like a double charge, contact your credit card issuer at your earliest convenience to resolve it. However, if you see purchases you don’t recognize, get on the phone (or go through your card issuer’s mobile app) immediately to report them.

If the charges aren’t yours, your issuer will likely shut down your card and issue a new card with a new number. That way, the fraudsters can no longer use the old account.

After this incident, you should closely monitor your credit report to ensure the crooks cannot access other accounts in your name. You can always place a fraud alert on your credit file, requiring lenders to confirm your identity before approving new credit accounts.

How to choose a credit card for the first time

“Don’t just go pick a random card. And don’t assume that because a credit card company or a bank will give you a card that [it’s] the card you should take,” says Weiss. Instead, take the time to research different cards and compare your options before opening an account.

Some of the criteria you should consider as you compare cards include:

• Annual fee: A card’s annual fee (if applicable) gets charged to your account, instantly reducing your available credit. However, you may be able to get that fee waived.
• Annual percentage rate (APR): Your APR, sometimes called the interest rate, only impacts you if you carry a balance. If you pay your card off every month, you’ll never pay interest.
• Spending rewards: Some cards will give you points, cash back, or travel rewards for spending in specific categories like groceries, gas, dining out, or entertainment. Choose a card that aligns with your spending habits and lifestyle.
• Other perks: Some cards provide valuable benefits such as free credit scores or shopping discounts.

You should also check the card issuer’s minimum credit score requirement. Sometimes, this information is readily available on the credit card company’s website. 

If it isn’t, you can often try to pre-qualify for the card on the same website. If your score is under the published minimum or you can’t get pre-qualified, you can apply for a different option now and revisit that card when your score has improved.

The takeaway 

We all kick off life with zero credit (and some of us return to the starting line). Fortunately, building (or rebuilding) and maintaining an excellent credit profile is possible with some strategy, responsibility, and time.

While the process may seem challenging, the most important thing you can do is begin. “If you do it right and you have the healthy habits and the payment history, three to five years down the road, you’ll be very happy you started today,” says Weiss.