Using Credit Cards to Improve Your Credit Score

Updated: November 25, 2023 Author:

Quick answer: Always paying your credit card bills on time and keeping your credit balance low compared to your credit limit is a common way to improve your credit score in as little as six months. Using your credit card responsibly is essential if you’re looking to boost your credit health.

    Ever found yourself pondering how to give your credit score a lift? You might be surprised to learn that credit cards can be a fantastic solution. Regular, on-time payments and managing your balance can improve your score in just a few months.

    This can open the doors to better loan rates, more credit options, and better terms for future financial products. In this article, I’ll delve into how using credit cards can boost your credit score, and share tried-and-tested strategies for doing so.

    What Does Using Your Credit Card Wisely Do For Your Credit Score?

    Ever wondered what happens to your credit score when you use your credit card smartly? Here’s what to expect:

    • Improved Payment History: Making regular, on-time credit card payments is key to building your payment history. This is the most significant factor in credit scoring algorithms, contributing a massive 35% of your credit score. Building up a more extensive payment history shows lenders that you can manage debt reliably.
    • Better Credit Utilisation Ratio: “Credit utilisation ratio” means the amount of credit you’re using compared to your credit limit. Keeping the amount of credit you’re using low suggests that you’re not overly reliant on credit. This is a big positive in the eyes of the credit scoring systems.
    • Increased Credit History Length: The longer your credit history, the better. That’s because the longer you’ve had credit, the more information lenders have to go off. Using a credit card for a while helps stretch out your credit history, which is a big thumbs-up for your score.
    • Diverse Credit Mix: If you’ve only ever had loans previously, adding a credit card to the mix is a straightforward way to show that you can juggle different types of credit. Having a mix of credit types in your credit history can slightly boost your score.

    How Soon Will My Credit Score Improve with Responsible Credit Card Use?

    There’s no magic number for how long it’ll take you personally to see credit score improvements from a credit card. With that said, most people start to see an improvement within six months of keeping up with regular payments.

    Boosting Your Credit Score with Credit Cards

    So you’ve got a credit card in your wallet – nice! But it’s not just about having it; it’s about how you use it. Here are a few steps you can take that will move you in the right direction:

    Make Regular Payments On Time

    One of the best and simplest strategies out there to improve your credit score with a credit card is to make your credit card payments regularly and on time. Easy, right?

    By paying your credit card bill on or before the due date every month you’ll show creditors that you’re financially reliable. Obviously, this is a huge factor when it comes to determining your credit score.

    Keep Your Credit Card Balance Low

    The credit limit on your credit card is not a target! If you’re serious about giving your credit score a boost, try to use less than 30% of your limit. For instance, if your credit limit is £1000, try to stay under £300. This low usage shows lenders you’re not too reliant on credit, which is good for your score.

    Choose the Right Credit Card

    There are thousands of credit cards out there, so choosing one that fits with your goals is essential. Secured credit cards are your best bet if you’re specifically getting a credit card to improve your credit score.

    Another top tip is to opt for cards with comparably lower interest rates and no annual fees, which will reduce the cost of your borrowing.

    Limit Your Credit Inquiries

    Every time you apply for a new credit card a “hard inquiry” is made on your credit report. This hard inquiry leaves a temporary mark and can lower your credit score for a short period.

    Of course, getting accepted is great, but if you’re racking up rejections or trying to open several cards at once, this looks like a red flag to lenders. The good news is a lot of credit cards offer online checks to see if you might qualify before you apply, which is definitely worth doing!

    Keep Your Accounts Open and Active

    Tempting as they are, introductory bonuses shouldn’t be your only focus. Keeping your card active after the bonus period helps build a longer credit history, which really matters on your credit report.

    Advantages of Improving Your Credit Score

    Still unsure? Here are some of the reasons you may want to improve your credit score:

    • Better Credit Card Offers: With a high credit score, you’ll gain access to premium credit cards. These premium cards come with a huge range of benefits, from free travel insurance, to airline points, to cashback bonuses, potentially saving you thousands of pounds a year.
    • Better Loan Terms: A strong credit score increases your eligibility for loans with lower interest rates. This is super handy if you’re eyeing a big purchase, like your dream home or a new car.
    • Easier Rental Approvals: Landlords love to see a potential tenant with a high credit score. That’s because it reflects financial responsibility, so they see you as a reliable rent-payer.
    • Reduced Insurance Premiums: Higher credit scores can sometimes lead to lower insurance premiums, since a higher score is generally associated with lower risk.

    Final Thoughts on Using Credit Cards to Improve Your Credit Score

    To conclude, improving your credit score can sometimes feel like an impossible task, but I promise it’s doable.

    The key lies in two main habits: sticking to on-time payments and keeping your credit balance reasonable. Keep these practices up over time, and you’re well on your way to a higher credit score and better credit card benefits down the road.