Can a Credit Card Improve Your Credit?

By Steven Shaw on 7/17/2015

Credit Score

Can a Credit Card Improve Your Credit?

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Many consumers see credit cards as a gateway to debt. While they certainly give you the opportunity to spend money you don’t have, when used responsibly, their powers can be harnessed for good, not evil.

When you closely track your spending and pay your bills on time, your credit card can be a huge financial asset, and it can be a simple way to establish and build good credit. Because your credit standing is a factor in so many aspects of your life — getting a home, buying a car, setting up utilities and getting insurance, to name a few — you should know how to improve it. Here’s how credit cards can help you do that.

It’s All About How You Use It

A good credit score shows potential lenders you are likely to repay any borrowed money, based on your previous behavior. With a credit card, you establish that good behavior by paying your bills on time and keeping your balance low, relative to your credit limit.

With a credit card, many experts recommend keeping a balance-to-limit ratio of no more than 30% — but the lower it is, the more it can potentially benefit your credit score.

Credit utilization (that debt-to-limit ratio) is the second-largest factor in determining credit scores; the biggest is payment history. Pay your bill on time every time it is due, and you’re on the path to better credit. Even if you have seriously negative information on your credit report, like a loan default or bankruptcy, using a credit card to establish a recent, positive payment history will help you start to move on from those past problems. It takes time, but it’s a good long-term strategy.

You don’t have to pay your credit card bill in full, just on time (though paying your bill in full will help you keep that credit utilization rate low, not to mention keep you from accruing interest on the balance). To build credit with a credit card, you can do something as simple as make one small purchase each month and pay off the bill when it comes due — you can even set up automatic billing to make it easier on yourself, just don’t forget to check your account activity regularly, to make sure everything is being paid as it should be.

You Can Still Get a Credit Card With No Credit or Bad Credit

Even if you have no credit history, there’s likely a credit card you can get. You may not have many options — you’ll probably have to go with a secured card, which you can learn about here, but these credit products are specifically designed to help you improve your bad or non-existent credit. You can ask to upgrade your secured card to a standard credit card after a period of on-time payments, often 12 months.

If you have bad credit and want a credit card, you’ll have more options than those with no credit, but you’ll want to pay close attention to the terms. Credit cards for people with bad credit tend to have higher interest rates and less favorable terms than cards for those with great credit.

If you want to see how your credit cards are impacting your credit, you can check your credit scores for free every month on Credit.com and track your progress as you try to improve your scores.

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Christine DiGangi covers personal finance for Credit.com. Previously, she managed communications for the Society of Professional Journalists, served as a copy editor of The New York Times News Service and worked as a reporter for the Oregonian and the News & Record. More by Christine DiGangi

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