If you are trying to establish credit for the first time, or you wish to re-establish it or you simply want to improve your score, a credit card can be a great tool for reaching your goals.

However, the card must be handled in a very responsible manner. Otherwise, you may find yourself in major trouble.

With some time and conscientious action, you can have a much better score.

Understanding the Score versus the Report versus the History


We will start with Credit History. As the name implies, this is a record of the various kinds of debt you have acquired as well as how you paid the debt.

Lenders use a person’s history to determine if someone is a good risk or a bad risk for a new loan.

If a person has had a mix of credit card debt, installment loans like an automobile account, and unsecured loans with a multi-year record of paying the loans on time each month, the person should have a good score and will be viewed favorably by lenders.

Consider the following example. 5 different people walk into a bank over a day and request a loan of $500. The people all agree to pay back $550 within a specific amount of time.

So, the bank agrees to offer loans to all 5 people. 4 of the people repay the loan as stated, but one person never repays anything.

In this scenario, the bank loaned out $2,500 total (5 times the $500) and received in return $2,200 (4 times the $550). In this instance, the bank lost money due to risk.

All lenders, whether it is a credit card company, mortgage lender, boat financer, or any other type of lending institution, will go through a similar process to determine if they wish to lend out the money to the borrower.

But lenders are not the only kind of organizations that will review a person’s account history. It is quite common for all of the following organizations to also review account history

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  • Landlords – if you fill out an application to rent an apartment or a home, it is very likely that the landlord or the leasing agency will review your account history. If you have experienced issues repaying a car loan or a credit card, then they will be less likely to approve you for the rental agreement.
  • Employers – if you apply for a new job, your potential employer may also look at your credit report, with your written permission. Companies are using the person’s account history, and how they handle their financial commitments, to decide the person’s character.
  • Buying a new Cell Phone – with the prices of modern cell phones, it is common for people to finance the price of the device over 2 or 3 years. Since this is a loan, with the phone being utilized as the collateral, most cell phone companies will review your account history of a new customer to decide on granting them a phone with a new plan.
  • Insurance policy for a car, home, or business – while getting insurance on a vehicle, a boat, a motorcycle, or apartment is not the same as taking out a new loan, it is viewed as a risk by the insurance agency. The insurance company would like to know if you have made multiple insurance claims in the past or even had a total loss. Bad credit history does not always mean that you cannot get insurance, but it could mean you have higher premiums to pay.

All of the scenarios above have the same common theme; someone is looking at the risk associated with you based on your credit history.

Credit Report

A credit report is a file that contains a good bit of information.

In the USA we have 3 major agencies that collect credit history information and provide reports. These agencies are Experian, Transunion, and Equifax.

Lenders, employers, and other companies mentioned above have the option of requesting a triple credit report, which combines all the information from the 3 agencies, or they may use a double report or they may simply use one agency for their report needs.

The report will list personal information such as the person’s name, date of birth, social security number, current address, and possibly their current employer. Some reports will also include previous known addresses and previous employers.

Along with the personal data, the report will have a score (discussed later) and a list of the accounts in the borrower’s name.

The list of accounts will show when the account was opened, the number of payments made, and will show details about late payments if the customer has been late at all.

If an account is paid off or turned over to collections, it will also show when the account was closed.

In the case of a credit card or revolving line of credit like a home equity line, there will also be an amount that shows the maximum the person can charge on that one account.


The credit score is a numerical value assigned by the credit bureaus. The value is like a grade from high school. A higher score means you are a good candidate for a loan. As the score goes down, your chances of getting approved for a credit card, or other things, also go down.

The score is a grade of your credit on the day the report was generated. The scores usually range from the low side of 350 to 850.

Your score is not etched in stone. A person could have a 632 score one day and then 60 or 90 days later their score could be 701. The idea is to understand what makes a good score, what impacts it, and follow the habits to attain a high score.

Generally speaking, the following tips will help anyone build a high score

  • Make all payments each month either on or before the due date
  • Have a variety of types of accounts (credit card bill, secured loan such as a car loan, and a small unsecured loan)
  • Maintain low cards balance
  • Establish a significant amount of time for open accounts
  • Don’t check your score too often

By following these tips faithfully over time, your scores, regardless of the credit agency, should be strong enough to get approved for almost any kind of loan.

Building or Improving Your Credit File

Review Your Existing History

To create a good credit report from scratch, or improve your existing score, you need to have a starting point.

The best thing to do is to get a copy of your current credit report from each of the 3 major agencies previously mentioned. Each of these companies will provide consumers with one free report every 12 months. You may call them to request a copy be sent to you via postal mail or you may visit their websites and request an online copy.

Another simple way to view your score is to visit Credit Karma. Credit Karma has millions of users that review their free credit files. In exchange, Credit Karma utilizes the data from clients to sell advertising to its financial interests.

When you receive your reports, start with the personal data. Make sure the facts are straight. This is especially important for people that have similar names as others, such as someone that is a Junior or so-and-so the fourth. Having an identical name as another person can lead to errors on credit reports.

Next, you want to see if there are any errors about missed payments on your report. If you have proof that a payment was made on time, submit the information to the credit agency and ask for it to be corrected.

The next step is to get a feel for how the 5 major factors affect your score and what you can do to improve your credit rating.

The 5 Pillars of a Credit Score

History of Payments 35%
Balances Owed on Accounts 30%
The mixture of Kinds of Accounts 10%
Amount of New Accounts 10%
Overall History Length 15%

As you can see from this chart, the 2nd most important item on the list is balances owed on accounts. In the next section, we will explain how credit cards can help you with this part.

Credit Cards Can Give Your Scores a Real Boost

When you open a credit card, you will be assigned a certain limit. Depending on your credit history, your income, and your current debt, the limit can range from $200 up to several thousands of dollars.

If your score is not that great, you will likely receive a card with a limit somewhere around $200 to $1,000. The important part though is not the limit. It is how you use it.

Some credit reports will show an available limit percentage. You want that limit to be as close to 100% as possible as often as possible. This will TREMENDOUSLY help boost your scores.

Let’s do a little bit of simple math to explain the available limit so you can understand what lenders and other people are reviewing. The following chart will help to simplify the information

  Person 1 Person 2
Number of credit cards 4 1
Maximum combined limits of all cards $35,000 $500
Current balances owed on all cards $6,000 $25
Available credit limit percentage 82.85% 95%

In this particular example, person 2 would receive a higher boost to their credit score. Even though they have one card available to them, and even though they have a much smaller overall limit, they are not using the cards very much. Therefore, the Balance of Owed Accounts is more favorable for person 2.

This is an extremely important point and cannot be stressed enough; if you have credit cards now, work on paying down the balances. Paying down the balances on all your cards will significantly boost your scores.

If you do not have a credit card, getting just one credit card and keeping a low balance on the card at all times will greatly help your scores.

Getting a Credit Card for the First Time

If you have very little credit, or you are re-establishing credit, you may have to do a bit of research to find an available credit card.

One good first step is to start with your local credit union. They will usually have a guaranteed credit card option.

With the guaranteed option, you will deposit a certain amount to a savings account. The amount will be the collateral for your credit card. For example, if you deposited $300 to an account, then your available limit would be $300 on the credit card. Over time, as you make purchases and pay the balance on time, your score will increase the and credit union will lift the collateral requirement on the card.

Other credit card issuers offer cards to help people increase their scores. Some of these cards will start with a balance that you must pay down. The balance will usually be in the range of $100 to $300. Once you have paid the amount down, then you may start using the remaining balance.

Keep in mind that some cards will have an annual fee that you will need to pay to continue using the card. Check the fine print for any card offer you may get.

How Long Does it Take?

This is a question that people ask frequently “how long will it take to build my credit score?” The answer can range from 3 to 4 months to 2 to 3 years.

If you have very little credit now, and you plan to open a credit card account, then you will have a decent to strong score within a few months by following the advice in this blog post.

If you have suffered a major financial setback, such as bankruptcy, divorce, or loss of a job, typically it can take 12 months to 3 years to rebuild your scores back up.

Review of Building Credit with Credit Cards

Here is a quick review to help you stay on track and improve your odds of using credit cards for a higher score.

  • Make sure to pay all of your bills (rent, utilities, credit cards, car loans, etc.) either before or on the due date each month.
  • If you can manage it, set up as many of your recurring bills to pay automatically either from your paycheck or your checking account.
  • Keep your balances on cards as low as possible. The best practice is to pay off your cards every month.
  • Do not try to get multiple cards in a short amount of time. Simply get one card, manage it wisely, and be patient.

Summing Up Building Credit With Credit Cards

By following these best practices, you should see a real boost in your overall score and begin to enjoy the perks of having a high credit score.

Additional Helpful Credit Resources:
Do you already know you have bad credit? There are many things that you can do to counter that, especially if you want to buy a home sooner than later. Knowing all of your debts, making a budget, avoid opening new accounts while going through the process are just a few things you should know about. This post by Eileen Anderson takes you through additional steps you can take to improve bad credit.

If you want to buy a house with less than perfect credit, take a look at this post by Joe Boylan. There are mortgage programs available with bad credit. The rates will be higher and it may be harder to qualify but there are options. Joe also details the dispute process for something on your credit report. This can be a quick way to increase your credit score before you buy a home. 

Depending on where you are located can determine what landlords will use your credit score for. This post by SparkRental details landlord credit score requirements from around the country. Learn what the top 10 cities’ average credit score is needed for approval.