How To Build Credit With A Credit Card

As a business owner, having a solid credit history and a good credit score is important. Potential creditors will often use your credit history to consider if you qualify for a loan or credit card—both of which could be great tools to improve your business.

Unfortunately, life happens and you may find yourself with a weak credit history and a lower-than-desirable credit score. Luckily, not all hope is lost. With some smart moves, you’ll be able to turn your credit history around.

One of the most accessible ways to rebuild credit is with a credit card. Because there are plenty of cards aimed towards users with weak credit, you can obtain a line of credit with ease. Keep reading to find out how a credit card can help you!

Apply For A Secured Or Credit-Building Card

If you don’t have a credit history, or perhaps your score is low, getting a secured card or one designated for credit-building is a great option. While secured cards require a security deposit (usually several hundred dollars), you’ll be able to use them to build credit.

Plus, because these cards are targeted towards low-credit users, you likely won’t need to worry about having your credit card application rejected. Besides that, you normally shouldn’t have to pay an annual fee—meaning that improving your credit score won’t cost anything.

Among the top secured cards include Discover it Secured, Capital One Secured Mastercard, and Wells Fargo Business Secured Credit Card. If you want a more in-depth breakdown, check out our post on the best secured cards for small businesses.

Don’t Apply For Too Many Cards At Once

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Every time you apply for a credit card, the issuer will do a hard pull on your credit history. Each hard pull can impact your credit score. Too many in quick succession may drop it even further—something someone with an already low credit score should try to avoid.

This happens because creditors will see you attempting to open multiple lines of credit quickly. Doing so makes it appear possible that you are in desperate need of money — and therefore a risky candidate.

Only apply for a card you need and know you will get. After a few months, if you still need another card for whatever reason, then you can apply for a second card.

Keep Accounts Open

Even if you aren’t using a credit card, having an open account can still look good on your credit report. The longer you have an account open, the less risky you’ll appear to creditors. This is because they see your credit history as more predictable.

Additionally, closing an account lowers the average age of your accounts. This can damage your credit score because average account age makes up 15% of your FICO score, the primary credit score calculation used by many creditors.

So if you’ve signed up for a card to get the $200 bonus, keep the account open. Better yet, look for a card with an excellent bonus offer that you’ll actually use in the future. This way you’ll not only have a card with a longer history on your credit report, but you’ll also be consistently utilizing your line of credit.

Maintain A Low Balance

One of the most important factors that impact your credit score is credit utilization. You’ll want to only utilize up to 30% of your available credit. Ideally, you’ll keep the amount you utilize between 1% and 10%.

To determine how much you can spend, determine your card’s maximum credit line. Once you know that, plan to only spend up to 30% of that amount.

Additionally, around 30% of your FICO score is determined by how much of the credit line you use — that’s almost a third of your score! It’s vitally important to keep track of how much credit you’re utilizing—especially if you’re working on improving your score.

Make Timely Payments In Full

There are two very simple things you can to do improve your credit score with a credit card: make on-time payments and pay off the balance in full. A basic goal is to only buy when you know you’ll be able to pay. Instead of thinking of a credit card as “free money” or a loan, think of it like a debit card where you can only spend what you have in your bank account.

It’s also worth noting that if you make repeated late payments, your issuer may report you to credit bureaus. This will put a negative mark on your credit report, ultimately lowering your credit score even further. Plus, your payment history can make up to 35% of your FICO score. This means that making payments on time will positively impact your score more than other factors.

One way to make sure you always pay on time is to set up automatic payments. This way you won’t forget to pay off your balance. Of course, you will still need to make sure there’s enough money in your bank account so that your payment isn’t rejected.

Final Thoughts

Ultimately, building up your credit with a credit card is about diligence and patience—this won’t be something that changes overnight.

However, as long as you pick the right card for your business, spend smart, and stay on top of payments, your credit history should and improve and your score should rise. Once this happens, you’ll be able to apply for cards with better rewards and loans with more competitive rates, letting you focus on what matters: your business.

If you’re uncertain of what your credit score is, check out our list of the best free credit score-checking websites. Or perhaps you do know your credit score, but have spotted an error on your history. In that case, find out how to dispute this error.

Good luck!

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