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How to Use a Credit Card to Build Credit

At some point, you’ll be looking into making a big life move — buying a car or a house, or maybe you’re looking for seed funding to go from side hustle to entrepreneurship! Maybe you don’t want to do those things right now, but you could definitely see yourself doing one or more of these things in a few (or more than a few) years.

When the time comes, you’ll want to have more than cash in your bank account to make these major life decisions financially sound, and also work to your advantage! 

You need lenders to see you as “creditworthy.” That’s just a weird-sounding way of saying you’re someone that banks and credit unions trust enough to loan you money. They can trust that they’ll get their money back in an agreed-upon, set period of time (with interest), from looking at your history of paying off loans, and they can decide with confidence that you seem like a safe bet.

For this to happen, you need to actually have a history of paying off loans, which is why it can be a good idea to get and use a credit card to build credit.

That way, when you go for that big adult loan (car, mortgage, business loan, whatever), and the lender looks at your score with the big three major credit bureaus, they’ll see you have a solid record of paying your bills on time.

Here are some tried-and-true tips on how to use credit cards to build credit.

Pay off your balance each month

Nobody wants to carry around a credit card balance if they can avoid it because there’s always the risk of getting stuck under a mountain of debt as the interest accumulates. Fortunately for you, we’re going to tell you how to avoid it!

It’s simple, especially if you’re someone who’s just getting started.

Use your credit card to make small, everyday purchases that you’d normally pay cash for or for which you’d usually use a debit card (groceries, gas stations, and restaurants, to name a few).

Then, at the end of the month, pay off that balance in full! You’ll not only avoid accruing tons of interest but you’ll also be using a credit card to build credit. And, fun bonus: if your credit card has a rewards program (like the UMe Credit Card does!), you can rack up points to redeem on other things, such as travel or gift cards with your favorite retailers!

Use less than 30% of the credit card limit

This tip goes right along with the one above. Obviously, it’s a lot easier to pay off your balance when it isn’t ginormous.

If you’re using it to make a big-ticket purchase this month, maybe hold off on using it for those day-to-day purchases for the moment. Just make sure you’re able to pay off the balance so you can build that credit.

Set up autopay

Even if you can’t pay off your entire balance each month, you can at least pay your bill on time. That’s right, paying your credit card on time is a factor in your credit score! When you continuously pay your card on time, that will go a long way toward building or improving your credit (and you can avoid the late fees that come with missing a credit card payment).

A good tip is to set up automatic bill pay. You’ll avoid missing a payment and have one less thing to worry about. Who wants to use a credit card to build credit without missing a beat? Everybody, that’s who!

Make more than the minimum payment

Of course, making the minimum payment on your statement balance is better than not making the payment at all. However, avoid paying only the minimum whenever possible. 

That’s because your interest rates will compound and you could end up paying more in interest than the actual balance from your purchases (that’s called your principal balance). Keep your payments affordable and avoid paying tons of interest by paying more than the minimum every month, whenever you can’t pay in full.

Get a starter credit card

If you don’t have a credit card yet, get one. Many credit unions and banks offer secured credit cards that can either help you get started — or improve your credit if it needs some work.

With these credit cards, you make a cash deposit that is a dollar-for-dollar match for your credit limit. Use it to make small purchases (staying below that 30% limit on your credit limit!) and pay it off regularly and on time. This is especially important since the interest rates are often pretty high because the borrower (you) is either unknown or not super creditworthy (yet).

It may sound like a pain, but it’s also a short-term tool to prove to lenders that you’re working on building credit or improving your credit habits!

Let UMe Help U Start Using a Credit Card to Build Credit

Whether you’re looking to build credit with a credit card, or have built up that credit score and are ready to apply for an auto loan, personal loan, or mortgage, UMe’s ready and willing to help.

UMe members have access to rewards on qualifying purchases (and more!) with our UMe Visa Credit Card. In addition to a low fixed rate, you’re virtually fee-free! There are no annual fees, nor are there fees for balance transfers, cash advances, or even to apply.

Oh, and our members also have access to affordable loans at competitive rates. No big deal.

Moreover, we’re a member-owned cooperative, which means we’ve got you, your financial goals, and your best interests at the heart of our organization. It’s all in our name: U + Me = UMe. You’re not just a bunch of data on a spreadsheet to us, you’re an individual, and UMe gets that! 

We’re proud of our member-focused customer service, which is why we’ve got smooth and easy application processes for all of our products and services.

Interested in learning more about building credit with a credit card? If you want to qualify for a credit card, we’ll tell you everything you need to know to get started.

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