Improve your credit score with a credit-building credit card

November 16, 2020

Do you have little to no credit history or even a bad credit history? Are you starting your credit journey a little late or wanting to get off a bad path and onto a good one?

Having a low credit score kind of stinks. A low credit score can prevent you from qualifying for a loan (or a loan with favorable terms). It can cause you to pay higher interest rates, or even higher insurance premiums. Maybe you have a low credit score because you don’t have any credit history, or maybe you made mistakes in your younger days that you’re working to overcome now.

How you can improve your credit score

There’s no quick path to building credit history if you have none. And there’s no easy “fix” if you have damaging information on your credit report. It can take up to 7 years or more for damaging information to fall off, but that doesn’t mean there’s nothing you can do. Rather than sit by idly, take charge of your credit score improvement journey and start making positive changes today.

The credit experts at Loqbox know lots of ways you can start improving your credit history. In addition to enrolling for our free credit-building savings solution, you can also start by getting approved for a credit-building credit card.

What are credit-building credit cards?

Credit-building credit cards are designed specifically for people with no credit history or poor credit. They don’t offer the rewards that other credit cards do, but they’re great starter cards to getting you on the credit path that will open opportunities down the road, such as:

  • Getting approved for a mortgage loan,
  • Paying lower interest rates,
  • And of course, getting approved for cards that offer rich travel and cashback rewards.

Creditors who offer credit-building cards account for less-than-stellar credit history by offering low credit limits and charging higher fees and interest rates. Despite these drawbacks, we think credit-building credit cards are a great way to start building or improving your credit history as long as you use them wisely.

Keep reading to see our 4 tips to use a credit-building credit card like a pro!

4 tips to using a credit-building credit card like a pro

1. Pay strategically

This may seem obvious, but your credit score will improve faster if you don’t carry a balance each month (you’ll also save hundreds or thousands of dollars this way, which is a plus). Although you should absolutely plan to pay off the balance each month, there are other things you can do in terms of payments that could result in a better credit report.

First, you can pay more strategically by understanding how reporting works. Creditors aren’t required to report your information, but most of them report to at least one – if not all three – of the credit bureaus. Creditors choose when they report, but many will submit a report the same day they send out your statement (called a statement date or closing date).

The information on the report includes:

  • Payment history (on-time and late payments)
  • Credit limits
  • Balances owed
  • Account status

Typically, your billing statement is sent 21 days before your payment due date. So if you notice a large balance on your credit report that you know you paid before the payment due date, this could be why.

If you’re working to improve your credit score, try to find out when your credit card company reports to the credit bureaus. If you can’t find out the exact date, it may be helpful to pay down large balances by your statement date.

2. Understand the terms

Second, you should fully understand the terms and conditions you’re agreeing to before you apply for and start using your new credit card. Be aware of any fees associated with the card. Some cards come with annual fees that you have to pay as a holder of the card, but many don’t. Even some beginner credit cards (or cards designed for those with poor credit) don’t have fees.

Additionally, make sure you know the annual percentage rate (APR) associated with your credit card, which is the amount of interest you’ll pay on any balances not paid in full before the payment due date. We’re hoping you’ll always pay your balance in full, but life happens sometimes. Some cards also carry penalty APRs, which are even higher interest rates that are imposed if you’re late on just a single payment.

3. Purchase wisely

It’s important not to be tempted to spend more than you would if you were using a debit card. A good rule of thumb when you’re starting out is to change any autopayments you have set up from your debit card to your credit card. That way, you’re not making any purchases you wouldn’t otherwise use your debit card for!

You can also use your credit card to purchase groceries and other necessities you’d otherwise pay for with your debit card or cash. Just don’t go too crazy in the snack aisle. And take it from us – leave the credit card at home when you make a trip to the mall or plan a fun night out. Everyone loves the person who buys a round of drinks, but you may not love yourself in the morning!

4. Keep improving your score

Keep in mind that your credit score won’t magically improve overnight. It’ll take a few months (or longer) for you to see progress. After six months or so, reward yourself by (no, not making a purchase) checking your credit report and celebrating the progress you’ve made!

There are other ways to improve your credit score while you’re giving the new credit card time to work. And if you don’t feel that a credit card is a good move for you right now, that’s okay too. (We’re big fans of self-awareness.) Consider a service like Loqbox, which helps you build your credit and save money – for free. Learn more about what we do here.

Loqbox is no longer available in your state. If you're an existing member you can still access Loqbox here.