How to increase your credit score with a credit card

Kredax Team

February 13, 2023

3 mins read

You’ve just started your journey to financial freedom and want to increase your credit score using a credit card. You know that by increasing your score, you can get access to better loan opportunities in the future, as well as build a positive financial identity. To do this, however, you need to use the right credit card and manage it responsibly.

For many people, the challenge of increasing their credit score with a credit card lies in finding the right card for their needs and then managing it responsibly. Knowing which type of card to choose from and understanding how much you can spend without overloading your debt can be difficult tasks.

We understand your struggle and want to help you properly use credit cards. Read on to learn how to increase your credit score with a credit card, including helpful tips on researching the right type of card for your needs, understanding your existing credit score, and managing debt responsibly.

Preparaing to Use a Credit Card

Before using a credit card, it is essential to do some research and find one that fits your particular needs. Start by understanding what type of credit score you have and researching different cards available. Look for those that have a low-interest rate, low annual fee, offer rewards or cash back, and come with a higher credit limit.

You should also be aware of how much you can spend using the card to stay on top of your debt. The goal is to keep your account balance as low as possible while still meeting your financial objectives. Some currently offered cards are; student cards, travel cards, cashback cards, retail cards, low-interest cards, etc. If you have doubts about which card to go for, you can always contact your financial institution and a financial advisor will work with you in picking the most appropriate card based on your financial situation and needs.

The importance of using a credit card the right way

Credit cards are one of the fastest and most effective ways to build credit. Using a credit card responsibly helps improve your overall financial health by increasing your credit score in the long run. A higher credit score gives you access to lower interest rates on loans and other financial products and better loan opportunities in the future.

Although being a great financial tool, it can be poison if not used appropriately. Credit cards can make us live over our means and create a cycle of debt. To avoid this, it is essential to stay on top of your finances and make sure you are never spending more than what you can afford.

The most important thing is to use your credit card responsibly by making timely payments every month, keeping your account balance low (ideally below 30% of your total available limit), and limiting new applications for additional cards. By following these strategies, you can easily manage debt while also increasing your credit score.

Making timely payments

One of the most essential steps in using a credit card to improve your credit score is making sure you pay on time every month. Delinquent payments can significantly hurt your score and lower it, while prompt payments will increase it over time. To make sure you don’t miss any payments, set up automatic monthly payment reminders or develop a system for writing down due dates for each card. On-time payments make up 35% of your credit score, which has the highest impact on the overall score.

Although paying only the minimum payment every month is considered to be on time, it is always advised to make the full payment or as much as possible to avoid accruing too much interest over time. It is also a good way of making sure to spend only what you can afford.

Keeping your account balance low

To improve your credit score, you should aim to keep your account balance as low as possible. Ideally, it should be below 30% of the total available limit. This means that if you have a card with a credit limit of $1000, you should try to keep your balance below $300 at all times. Keeping your account balance low will help increase your credit score and demonstrate responsible usage of the card. Credit utilization accounts for 30% of your overall credit score.

Avoid maxing out your credit card at all costs. If you find yourself in a situation where you can’t make the full payment, then try to pay as much as possible and contact your credit card company to work out a payment plan. Maxing out your credit card shows a lack of financial responsibility and can damage your credit score. Needless to say, how negative, going over your limit if allowed can be for your score.

Limiting new applications for additional cards

When using a credit card to build up your credit score, it is important to limit new applications for additional cards. Every time you apply for a new card, the issuer will run a “hard inquiry” on your credit report, which may hurt your score. Instead of applying for multiple cards, focus on building a good relationship with the card issuer and use the card you have responsibly to increase your credit score.

Bottom Line

In summary, using a credit card responsibly is one of the best ways to build your credit score. Make sure to pay your bills on time, keep your account balance low, and limit new applications for additional cards. By following these strategies, you will be well on your way to increasing your credit score and improving your financial health in the long term.