You are now leaving our website and entering a third-party website over which we have no control.
How to choose a credit card and build credit
Key takeaways
-
Secured credit cards work well for those with no credit or bad credit, student cards suit college-age applicants with limited history, and store cards allow you to build credit through retail purchases
-
Before applying, check your current credit score, compare annual fees and APRs, and look for cards that report to all three credit bureaus to maximize credit-building impact
-
To build credit effectively, pay on time every month, keep balances low relative to your credit limit, and use the card regularly with small purchases
Having a good-to-excellent credit history opens doors to all kinds of financial benefits, including the ability to get a mortgage or finance a car.
People that are just starting their first jobs after high school or college may not have much of a credit history yet. Others have damaged their credit scores in some way. When you need to build or rebuild credit, a credit card can be a useful asset.
Among the various ways to improve your credit score, certain types of credit cards rank high. This article will explain how to choose a credit card to build credit and boost that all-important credit score.
Why use a credit card to build credit?
Some banks and credit card companies offer cards specifically for building credit. These companies typically report the cardholders' activity monthly to the three credit bureaus that compile credit histories and issue credit scores. Using one of these cards responsibly means a steady stream of positive information being added to your credit history.
It's usually easy to get approved for this type of card. Plus, you can find cards that offer benefits like rewards programs, cash back, low introductory interest rates, and no annual fees.
Becoming an authorized user of a parent's or spouse's credit card (assuming they have responsibly managed their debt) is another way to help build your credit.
If you already have a credit card, using it responsibly is a good way to improve your credit score. Making every payment on time and keeping a low balance on the card can have a positive impact on your score.
Top types of credit cards for building credit
When it comes to building credit, three different types of credit cards stand out: secured credit cards, student credit cards, and store credit cards. Let's look at the features and benefits of each one.
Secured credit cards
A secured credit card is one that requires the cardholder to make a cash deposit to help determine the credit limit. This deposit might be a few hundred dollars or more, depending on the amount you have available. The card is used like any other credit card. To have a positive impact on your credit score, you'll need to make the monthly payment on time and keep the balance low.
Secured cards might charge an annual fee and the interest rates on secured credit cards tend to be higher than on unsecured cards. On the other hand, some secured credit cards offer benefits such as cash back on eligible purchases, just like the unsecured versions.
The good news is that if you use the card responsibly you could eventually get the cash deposit back. The card issuer might also move you up to an unsecured credit card and transfer the rewards you accrued to your new account.
Student credit cards
Student credit cards are specifically designed for college-age people with no credit history. They typically feature lower credit limits, higher interest rates, and easier approval requirements than standard credit cards, as well as no annual fees.
By using these cards responsibly, students can begin building a good credit history.
The cards often offer rewards, including some that are particularly relevant to students and educational resources.
To qualify, applicants will have to be at least 18 years old. Card issuers might require proof of enrollment and proof of income. Applicants should make sure that any student card they apply for reports to all three credit bureaus monthly.
Store credit cards
Credit cards issued by retailers are often overlooked as ways to build credit. But since most retailers report to the credit bureaus, a solid track record of usage and repayment can have a positive effect on your credit score.
Store cards work like regular credit cards, but they are issued by specific retailers or brands. Some of these cards, called private label, can typically be used at only the store or group of stores that issue them. They might give rewards only on purchases made at those stores.
Another form of store card, called co-branded, might be accepted anywhere that's in the payment network shown on the card. They may allow cardholders to earn rewards outside of the store.
Store cards may offer perks like free delivery and periodic "no interest" promotions, allowing you to make a large purchase and not pay interest on the balance if it's paid off within a set period, usually 6 to 12 months.
How to choose the right credit card to build credit
Before deciding on a credit card to build your credit, consider these factors:
-
Check your credit score. You're entitled to a free credit report at least once every 12 months from each of the three major credit bureaus. To get started, visit AnnualCreditReport.com
-
Compare fees. You should find out whether the card you're interested in has a monthly or annual fee. Late payment fees and foreign transaction fees are others to look out for
-
Look at deposit requirements. Card issuers typically require a cash deposit of $200 to $300 to obtain a secured credit card. A few accept smaller deposits, and depending on the amount of cash available, deposits can be in the thousands
-
Look at the annual percentage rate (APR). The APR is the interest charged on balances over a year's time. All things being equal, you'll want to find the lowest APR
-
Assess the rewards. Some cards may offer rewards like cash back and 0% APR introductory periods. Student card issuers sometimes work with universities to offer special rewards for their students
Tips for using a credit card to build credit
Once you've decided on a credit card, use these strategies to make sure it's having a positive effect on your credit:
-
Pay the amount due on time. Credit card payments are always due on the same date each month (or on the closest business day). Set reminders or set up auto pay so you don't miss a payment
-
Keep the balance low. Don't charge more than you can comfortably pay off each month. And if you do make a larger purchase, have a plan in place for the number of payments you will need to pay it off
-
Use your card regularly. This may seem the opposite of keeping a low balance but try to have at least one transaction each month. For example, make one small purchase and pay off the balance every month
-
Track your credit score. Watch your credit score for signs of improvement
-
Don't apply for too many credit cards. Each application will require a hard inquiry into your credit report, which could cause a small, temporary dip in your credit score. Too many inquiries in a short time may have a negative effect on your credit score
FAQs
You might see a rosier credit report in as little as 45 to 60 days after you have taken steps to build credit, but it may take much longer if you're rebounding from a bad credit history.
A secured credit card can be approved with no credit or bad credit—they're intended to help people improve their credit situation. However, credit card issuers typically require personal information, details on employment and income, and information that shows you can make the required cash deposit.
A few late payments are not an automatic score killer, but frequent missed payments will negatively affect your credit score. Lenders like to see a long, steady payment history, which accounts for 35% of your score under the FICO® system. You also could be subject to late payment fees.
Credit Cards offered at TD Bank
Explore TD Bank credit cards to find the right offer for you and your financial goals.