Can I Take a Credit Card to Build My Credit Score?

Last Updated : Jan. 22, 2025, 4:10 p.m.

A strong credit score and credit history are essential for your financial health. Hence, it is always essential to maintain a good credit score or enhance a low credit score. People adopt various ways to improve their credit scores, and taking a credit card is one of the best ways to enhance your credit score. If you use your credit card wisely like paying your bills on time, not exhausting your credit limit, etc., then they are great tools to improve your credit score. Credit cards are a great way to show financial institutions that you are using credit responsibly and are handling your finances well. Let us now read on to find out how credit cards can be used to build credit.

Key Tips to Build a Credit Score with a Credit Card

Credit cards, if used wisely will help you build a good credit score . But, they can easily lead you into the debt trap if you are not careful. Here are some tips to help you build a robust credit score and credit history using credit cards if you have no credit score, low credit score, or average credit score.

Tip 1: Make Timely Payments

Your credit score depends on payment history. Late payments and payment defaults impact your credit score negatively. Your payment history makes up to 35% of your credit score. Hence, do not miss your payments. Set up auto pay and payment alerts so that you do not miss the due dates.

Tip 2: Pay in Full Whenever Possible

Sometimes, you may not be able to pay your credit card bills in full due to emergencies. In those times, you are allowed to pay the minimum amount due. However, repeatedly paying only the minimum amount due will lead to the accumulation of outstanding balance. The balance carried over will accrue interest. Also, at one point of time, the outstanding dues may be so huge that it may lead you to a debt trap. So, pay your bills in full except when it is not possible due to some emergencies.

Tip 3: Aim Towards a Low Credit Utilization Ratio

Your credit utilization ratio makes up to 30% of your credit score. It is the ratio of credit used to the total credit available. The higher the CUR, the lower your credit score. Also, lenders get the impression that you overspend and will not be able to pay your Credit card bills on time. So, restrict the use of your credit card’s credit limit.

Tip 4: Avoid Unnecessary Spending

We are tempted to overspend due to availability of credit limit and due to attractive discounts and rewards offered by credit cards. However, this will sooner or later land you into a debt trap, which will reduce your credit score drastically. So, make sure to spend wisely with your credit card.

Tip 5: Consider Using Multiple Credit Cards

This will help in increasing your total credit limit and also lower your credit utilization ratio. However, this is like a double edged sword. You will have to keep track of all your payments and ensure to pay your credit card bills on time. Otherwise, you will be trapped in a huge debt which will be highly detrimental to your credit score. It will be extremely difficult to rebuild your credit score from the downfall.

Tip 6: Do not Apply for Multiple Credit Cards in a Short Duration

Credit card applications lead to a hard inquiry on your credit report. Multiple hard inquiries can harm your credit score and bring it down. Also, lenders will get the impression that you are overdependent on credit. So, limit the use of credit card applications.

Tip 7: Do not Close Your Old Credit Cards

You may have some old credit cards in your credit report which demonstrate a good credit history. Age of credit is very important for your credit score. The longer the credit history, the higher your credit score. These old credit cards will reflect your long term association with lenders. So, do not close old credit cards, as it will not only reduce the total available credit limit but also a good amount of your favorable credit history. This will lead to an increase in the CUR and also a reduction in the age of credit, both of which will create a negative impact on your credit score.

Tips on Credit Card Usage for individuals with Limited Credit History or Zero Credit History

Choose Your Credit Card Cleverly

It is important to choose a credit according to your budget and also one that aligns with your habits. For example, if you are a person who eats out frequently, then you should choose a credit card that gives you rewards, discounts, or cashback on restaurant bills, online food ordering, etc. This will help you redeem a percentage of the money that you have spent, and you can use it to pay your credit card bills. Hence, choosing your credit card wisely will help you avoid late payments, defaults, penalties for non payments, incurring huge amounts of interest on accumulated outstanding dues, and non utilization or credit limit. These in turn will help you build a good credit score.

Best Credit Cards for People New to Credit

There are credit cards which help people with limited credit history or zero credit history build a good credit score. These are secured credit cards and entry level credit cards.

Secured Credit Cards

A secured credit card is a card that can be obtained against your fixed deposit as security. The credit card will be given a credit limit equal to the amount of the fixed deposit. If you are a student or entry level professional with zero or negative credit score, then you can take a secured credit card which does not require a credit score. Paying your secured credit card bills without defaulting will help you build a good credit history and score.

Entry Level Credit Cards

Entry level credit cards need minimal documentation and are best suited for individuals who are just starting their journey in credit. These cards have low annual fees compared to others. They offer lower credit limits as well but offer other benefits like rewards and cashback.

Tips on Credit Card Usage for individuals with Poor or Mediocre Credit Score

The first step towards improving your credit score will be to understand why your credit score is bad or average. For this, you can view or download your credit report and check what is bringing down your credit score. Then, you can take steps to rectify these. Some common tips to enhance your credit score are as follows:

1. Payment defaults: If you have delayed loan or credit card bill payments, your credit score will be poor.

Solution:

• Start making your payments on time.
• Always choose a credit card which fits in with your budget in terms of joining or annual fees, spending habits, etc. Before you take a credit card or loan, judge whether you can pay the bills or loans on time.
• To repay your loan EMIs, sometimes you can consider getting a long-term pre-approved personal loan against your credit card.
• If you have missed credit card or loan payments, you can convert the unpaid dues to EMIs to help you handle your repayment plan accordingly.
• If multiple payment timelines are bothering you, then you can unify all your outstanding dues into a single credit card to keep better track of your debt.

2. Use Credit Cards Responsibly: Handling credit cards responsibly is very important to enhance your credit score. For instance, you can use credit cards to make small purchases and repay your bills on time. Also, remember to repay your bills fully. This is because carried over balance will accumulate and lead you to a debt trap. Not only this, it will also accrue interest.

3. Use Multiple Credit Cards: Obtain multiple credit cards. It will help you manage different purchases and make your repayments simple. It will increase your overall credit limit and limit your credit utilization ratio. This in turn will improve your credit score. Multiple.