Editorial Policy

The easiest way to build your credit score? Credit cards

Miranda Marquit

December 3, 2014

Love them or hate them, credit cards are the easiest way to build your credit score. Credit scoring models make regular use of cards because they are among the easiest ways to judge a consumer's credit habits.

“For most people, their credit score is going to be largely determined by their use of cards,” says Lee Gimpel, a credit expert and developer of The Good Credit Game, a financial education curriculum. “It's more common for people to have a credit card than, say, a mortgage.”

If you want to build good credit fast and maintain it over time, regular card use is a major part of the equation.

Use credit to build your score

Your credit score is a measure of your ability to handle credit. “You don't get a good credit score because you don't ever use credit or take out loans,” Gimpel points out. “You get a good score by using credit responsibly.”

If you want the benefits that come with having a good credit reputation, cards can be the fast way to get there, because issuers regularly report your payment history to credit bureaus.

This doesn't mean that you need to open a lot of credit card accounts in order to build a good score. “More is not always better,” says Randy Padawer, a consumer advocate with Lexington Law. “Adding too many credit accounts could affect your score in a negative way.”

Instead, open one or two accounts, use the cards regularly, and pay your bill on time each month. By paying on time each month, you are fulfilling 35 percent of your FICO score, the most commonly used scoring model by lenders.

Keep your credit utilization low

Making regular card payments is only a portion of how cards are factored into your credit score. Some 30 percent of your credit score is based on how much available credit you use.

“You get a good score by using credit responsibly.”
Lee Gimpel, credit expert

Called the credit utilization ratio, you don't want to use more than 30 percent of your credit limit on your cards at a time. This means that for every $1,000 you have in available credit, you should use no more than $300. It's best for your finances, of course, if you don't carry a balance at all; just make about one purchase a month on each card, and pay it off in full.

Gimpel also points out that some regular card users run into problems when they use cards for everything. “Even if you charge $4,500 on a card with a $5,000 limit and you pay it off, it's still a red flag.”

If you regularly charge everything to a card in order to benefit from the rewards, take a break from the practice a few months before applying for a mortgage. Even though you pay off the card each month, it looks as though you regularly use a large portion of your available credit, which could imply you're in over your head.

Another way to make sure that your credit utilization ratio remains low is to pay off your cards at least twice a month. There is no penalty, and you ensure that you don't pay interest.

Other factors that influence your score

The remaining 35 percent of your FICO credit score is made up of the length of your credit history (15 percent), credit inquiries (10 percent), and types of credit accounts (10 percent).

Credit history: Closing a long-standing card account can bring your score lower, since it reduces the overall available credit across all your credit accounts. Also, the younger you are when you begin to effectively manage credit, the longer you have to build up a positive credit history as you begin to apply for bigger loans (such as for cars and homes) in your late 20s or 30s.

Credit inquiries: Your FICO score is impacted when a potential lender checks your credit, which is often called a “hard pull.” So, to keep hard pulls to a minimum, you don't want to apply for multiple cards at once, which can be a sign to lenders that you are getting in over your head. You also want to refrain from applying for new cards when you are being considered for a car loan or mortgage.

Types of accounts: The last part of your FICO, types of accounts, factors in the variety of your credit. Lenders like to see that you can handle different types of credit, both revolving credit (credit cards) and installment credit (such as car loans and mortgages.)

“Achieving a good credit score requires a perfect five-factor balance,” says Padawer. And credit cards, he says, are the easiest way to achieve this balance.