Understanding how credit cards can build credit history

Thanks to Loqbox, you're hopefully now well on the way to building your credit history.

But could a credit card help too? The short answer is yes. Let's see how it works.

A credit card is almost never the cheapest form of credit, so they're no good for borrowing. And, unlike Loqbox, there's no fixed balance or fixed repayment (instead credit cards use something called 'revolving account credit'). But using a credit card sensibly can still help demonstrate creditworthiness to other lenders. Here's how…

1. Clear your balance every month

Rule number one. Using your card to make small purchases and clearing the balance at the end of the month shows future lenders you can manage credit. By clearing your balance you'll also avoid interest and those sky high APR rates.

2. Stick to your normal spending

Only use the card for things you'd normally buy anyway. This way you don't risk overspending on your card.

3. Keep track of your cash

If you're spending on your card, it can be easy to overspend the cash in your current account on other things and not leave enough in the bank to pay off your card at the end of the month.

4. Check your chances with a soft search

Before you apply for any credit card, always check your likely chances of being accepted first or you can damage your credit history. Sites like TotallyMoney.com or MoneySuperMarket.com* will tell you which cards you're likely to get using a 'soft search' (that doesn't show up in your credit history). Though credit card APRs can be very high, if you’re paying off the full balance each month (see point one above), you’ll avoid paying any interest.

Follow these tips and a credit card can really help you step up your credit building efforts.*Transparency is important to us, we choose our partners very carefully, and only present financial products we think will work for you. If you take out a policy with MoneySuperMarket using the above link, then they will pay us commission for this.

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