May 17, 2022

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How To Build Credit | Quicken Loans

How To Build Credit With A Credit Card

The most popular option to begin building credit is through a credit card. Whether it’s a secured or unsecured card, properly utilizing a credit card can be a great way to establish payment history and demonstrate your ability to manage your finances.

Apply For Your First Credit Card

When banks and financial institutions give consumers credit cards, they are taking a certain level of risk that the card owner could be unwilling or unable to repay their debt. This risk is higher when consumers don’t have established credit history, which means it most likely will be difficult for those without credit to be approved for unsecured credit cards – meaning traditional cards where the debt is not backed by collateral.

This is where secured credit cards step in. A secured card functions similarly to traditional cards but requires the user to make a cash deposit at the time of card opening. This cash deposit is directly equivalent to the credit limit. For example, let’s say you deposit $500 when taking out a secured credit card. The bank or financial institution holds onto that money and your credit limit is now $500, which you can slowly use and make payments on. This minimizes your bank’s risk, because if you stop paying your credit card bill, they will take what you owe out of your initial deposit. This security is what makes it easier for people with little to now credit to get approved.

Although secured cards may seem limiting, they’re a great way to begin building credit as they allow you to make monthly payments, which will steadily boost your credit score over time. When possible, paying the card balance in full each month is ideal. If you can’t pay them off in full every month, be sure to at least make the minimum payment on time, as missed or late payments will cause your credit score to decline. Therefore, making sure your card is used properly and no mistakes are being made is crucial.

Become An Authorized User On Someone Else’s Credit Card

If you’re having trouble qualifying for your own credit card, becoming an authorized user on someone else’s may be a better option. This happens when someone you know – typically a family member – adds your name to their existing account. This gives you the ability to make purchases on the card without being responsible for the payments.

But this is only a good idea if you can confidently trust the cardholder to make their payments on time. Why? When the main user of the card pays their bill each month, this payment will also be reflected on your credit report, ultimately boosting your score. On the flip side, this means if the cardholder misses payments or makes them late, it could end up hurting your credit rather than helping it.  

Don’t Miss Any Payments

Lenders want to know you’re capable of making timely payments, so the importance of not missing payments cannot be understated when building credit. Missing payments will negatively impact your score, so when making purchases with a credit card, you should always know exactly when and how you will be able to make your next payment.