Building good credit often starts with your first credit card. If you’re in college, a student credit card might be the right card for you. If you’re out of school, and haven’t had a chance to start building credit, you may want to consider a secured credit card.

As you get access to credit (i.e., credit cards, loans) and then pay it back in a defined period of time, you start building a credit history. Consider these simple credit card tips that may help you along the way:

  1. Consider a Secured or Student Credit Card
  2. Pay Your Credit Card Bill On Time and In Full
  3. Only Apply for the Credit You Need
  4. Use Your Credit Responsibly
  5. Monitor and Manage Your Credit Utilization Ratio
  6. Check Your Credit Report
  7. Have a Diverse Mix of Credit

1. Consider a Student or Secured Credit Card

You might be wondering how to build credit if you have little to no credit. One way to start is with the Discover it® Secured Card, in which you deposit an amount of cash up front as collateral after you are approved and then can charge up to your assigned credit line.    

Be sure to charge only what you can pay for each month so that your balance remains low and you’re able to build a good payment history and establish good habits. It can also be a good idea to check with the issuer of your card to help ensure they’re reporting this activity to all three major credit bureaus.

If you are in school and want to build a credit history without a security deposit, you may consider the Discover it® Student Cash Back credit card, which offers cash back rewards on your purchases.

2. Pay Your Credit Card Bill On Time and In Full

Make autopay your friend! Spend within your budget so you can pay that entire balance every month when it’s due — Discover Account Tools can help you out. This is key, because timely bill payment counts for 35 percent of most credit scores. “Common wisdom” used to say that making the minimum payment and carrying a balance on your card improved your credit score, but it turns out that’s more of an urban legend: Carrying a balance just incurs interest, which can be higher for new cardholders, and you end up paying the balance plus the interest on the balance. And failing to pay the minimum may incur late fees.

3. Only Apply for the Credit You Need

When you’re just starting to build your credit score, you might think that opening a bunch of accounts will boost that score higher and faster. In reality, this can have the opposite effect. First, you need to know the difference between soft inquiries and hard inquiries. Soft inquiries are when a business checks your credit report to prescreen you. According to The Balance, they will most likely not affect your credit score. On the other hand, a hard inquiry, or an inquiry made as the result of an application on your part, can affect your credit score. That’s because lenders think you might be applying for too much credit because you don’t have the funds to pay your expenses otherwise.

Inquiries are generally about 10 percent of your credit score. If there are too many hard inquiries, that can cause your credit score to drop and possibly lead to denied applications.

4. Use Your Credit Responsibly

While you might want to take that new credit card out for a spin by buying a full size refrigerator for your dorm room, it’s best to start small. Use your credit card minimally, and for less extravagant items. You might even want to take a few of your smaller, regular monthly purchases — think music and TV streaming services — and automate them. This will keep your credit card active and will also keep your spending within your means.

5. Monitor and Manage Your Credit Utilization Ratio

Your credit utilization (or debt-to-available credit) ratio is defined by how much of your available credit is currently being used.

To figure out your credit utilization ratio on any credit card, you need to know your credit limit on that account. Typically it’s listed on your statement or you can call the credit card company to get this information. Divide your current credit card balance by your credit limit and multiply that number by 100. The resulting number is your credit utilization as a percentage. Credit companies will calculate this number across all of your open credit card accounts.

In general, a lower number is usually better. According to Experian, the recommended total credit utilization rate is below 30 percent. If you have multiple credit cards, you’re better off spreading the balance between them instead of loading up all your debt onto one card.

6. Check Your Credit Report

Everyone (including students) is entitled to a free copy of their credit report from the three major credit reporting agencies (Equifax, Experian and TransUnion) once per year. Students can request a copy of their credit report at the FTC-sponsored website, AnnualCreditReport.com.

When you receive your credit report, ensure your personally identifiable information is correct, including names, addresses, social Security Number, accounts and loans, says AnnualCreditReport.com. You’ll also want to look for things like inaccuracies of balances, payment history, charge-offs, etc. If you find any information that you believe to be incorrect, contact the business that issued the account or the credit reporting company that issued the report.

7. Have a Diverse Mix of Credit

Credit cards, bank loans, retail accounts and mortgage loans can all be considered when your credit scores are calculated. While it’s great to have a mix of several types of accounts, it’s also important not to open too many at once. Even if you’re new to credit, as many students are, credit age can impact your score, says NerdWallet, so closing your earliest credit card can have a negative impact on your score. Keep the accounts you have open and active for as long as possible, and shop around to make sure your credit card gives you the best interest rate.

Like a smartphone or social media, a credit score is a reality of modern life. Supplied with the knowledge on how to build credit, a little attention to detail every month may be all you need to stay on top of your credit score and build good credit.

Originally published February 13, 2015

Updated May 15, 2020

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