The old saying “you have to spend money to make money” is true for more reasons than one. When it comes to building your credit and developing a higher credit score, this statement is exceptionally true.

Using a credit card is a surefire way to build credit. Plus, credit cards come with their own unique benefits. Here’s what you need to know about credit cards and how to use them to build credit.

How are credit scores calculated?

Knowing your credit score is important and can save you time, money, and even disappointment if you’re attempting to purchase a big-ticket item such as a home or car. Before you can understand how to build a good credit score, it can be helpful to understand how your score is calculated.

Credit scores are calculated using multiple elements of financial responsibility and payment history. This might include the total amount of debt you have, whether or not your payments have been made on time, if any collection accounts exist, how frequently inquiries have been requested on your credit report, and the length of your credit history.

There are also multiple types of credit scores that use different scoring models — for instance, you may have both a FICO score and a VantageScore. You can typically check your credit score for free with a major credit bureau like TransUnion, Experian, or Equifax.

Understanding these elements can help you make excellent choices and potentially reach a healthy credit score.

What are the benefits of using a credit card?

When building your credit, there are two main types of accounts that you might use: credit cards and loans.

Loans, like mortgages and auto loans, offer the opportunity for a long-term account to help you to build credit. They also typically have more favorable interest rates and terms.

However, there are some benefits that a credit card offers that loans cannot. Here are some of the best benefits of using a credit card to further develop your credit.

Rewards systems

Credit cards offer users a variety of rewards and cashback options that can help shave off the cost of major purchases.

For example, some cards may offer bonus rewards for making purchases in specific categories like groceries or travel. Other cards might grant cashback on all purchases. These benefits make it easy to earn points, miles, and even cashback on everyday purchases while enjoying increased spending power at the same time.

Some credit cards even offer specialized rewards like airline upgrades, airport lounges, and discounts at popular retailers.

Different cards offer different rewards programs. Some offer better travel rewards, while others may offer more cashback. The higher your credit score, the better rewards you may qualify for.

Revolving credit vs. non-revolving credit

Another benefit that credit cards offer over loans is that they are a form of revolving credit, which offers more flexibility than non-revolving credit.

Non-revolving credit is a one-time loan of a certain amount with a structured payment plan to pay back the loan. Once the loan is paid back on a non-revolving account, the account is automatically closed. Non-revolving accounts include mortgages and auto loans, and often come with stipulations for how you use your funds.

Revolving credit, on the other hand, is an ongoing agreement to lend you up to a certain amount of money. These accounts will typically remain open as long as you make your payments on time. Revolving credit accounts can be held open indefinitely, and can also be used for anything at your discretion.

Secured vs. unsecured credit

The final major benefit to using a credit card rather than a loan for building your credit is that credit cards are typically unsecured credit, while loans are usually secured credit.

A secured loan or credit is a loan that is “secured” by an asset, meaning the lender holds onto ownership of an asset while the loan is being repaid. For instance, with a mortgage loan, the lender will hold the deed of the home until you have paid your mortgage in full. If you fail to pay, they may repossess your house.

An unsecured line of credit like a credit card is not secured by any asset. If you fail to repay your credit card balance and declare bankruptcy, the credit card company cannot reclaim any asset.

Unsecured loans typically have higher interest rates than secured loans because of this additional risk, so make sure to pay off your credit card bill every month to avoid racking up interest.

With benefits like these, it’s easy to see why credit cards play an important role in the average person’s financial portfolio. Using credit cards appropriately can give you access to major rewards on a revolving source of unsecured credit, proving your trustworthiness to lenders.

How can you build your credit using a credit card?

1. Pay off your credit card bill on time

One of the best ways to build your credit with a credit card is by paying off your credit card balance every month before the due date. This helps demonstrate that you can responsibly manage debt and increases your chances of obtaining financing in the future.

It may take some practice, but with careful budgeting and restraint, it’s by no means impossible to keep up with your minimum payments. Making consistent monthly payments over time can also contribute to building a more positive financial history for yourself.

2. Keep your credit utilization ratio low

Another great way to build up your credit score and show lenders you can handle borrowing responsibly is to keep your credit utilization rate low. Using less than 30 percent of the total available credit on all of your active accounts demonstrates responsible usage and can help increase your score over time.

Paying off your balances diligently and on time also contributes greatly to a strong credit profile and can help you avoid credit card debt. Investing in sound money management principles now can help you reap the rewards in the future.

3. Become an authorized user on a family member’s card

Building credit can be difficult to do on your own, but with the help of a family member, you can get ahead of the game quickly and easily.

Becoming an authorized user on a family member’s credit card is one way to positively influence your credit score. All you need to do is inquire with the primary cardholder (your family member or relative) and make sure that they are comfortable with sharing their account with you, even if you don’t intend to use it.

This can let you benefit from your family member’s good credit, as well as have access to more credit. Becoming an authorized user also allows access to perks such as points, cashback rewards, and travel miles — all while keeping your score intact!

4. Increase your credit limit

One path to building credit with a credit card is to request an increase in your credit limit. Your credit card issuer may send you a credit limit increase offer prompting you to ask for a higher limit.

Alternatively, you can initiate the process yourself by completing an online form or contacting customer service directly. Your credit score will largely depend on your history of repaying debt promptly and in full; if you have consistently made on-time payments, then you may be more likely to get approved for the increase.

Increasing your credit limit can help you lower your utilization and build your overall credit score over time, allowing you access to greater financial opportunities.

5. Choose the right credit card

Whether it’s your first credit card or your fifth, choosing the right credit card can make a noticeable difference in your credit.

For instance, some credit cards have varying interest rates, which can affect your monthly payments and interest charges.

If you have bad credit, you may not qualify right away for an unsecured credit card or a high-end cash rewards credit card. However, you may qualify for a secured credit card.

With a secured credit card, you’ll place down a security deposit to use as your line of credit. There are also credit cards that you can connect to a checking or savings account. When used as a debit card, these cards can help to build credit. These cards typically feature no annual fees and are a great way to build credit history.

You can also try a credit card like Vital Card, which can help you build credit and earn cash rewards. With Vital Card, your rewards are based on sharing and spending responsibly, and you’ll have access to a community of others who are also trying to build better personal finance habits.

Using your credit card to build credit: in summary

Building credit takes time and effort, but if you know how to use your credit card wisely, you can start the process today. Through smart habits and planning, your credit cards can be a gateway to financial health.

Some actions you can take to build credit include increasing your credit spending limit and keeping your credit utilization rate low. You can also choose credit cards that provide rewards and cashback programs that fit your lifestyle. Finally, don’t forget the importance of having a wide variety of new credit card accounts open. You can apply for Vital Card today to start reaping the rewards.


Q&A: What is Credit Utilization? |

What is a credit score? | Consumer Financial Protection Bureau

What is a Credit Utilization Rate? | Experian

Consumer Credit – G.19 – About | Federal Reserve Board

Vital Card blog posts are intended for informational purposes only and should not be considered financial or any other type of advice.