Building Credit History with a Credit Card: How it Works and Why it Matters?

There are many advantages of a credit card and credit history as it is the primary factor in determining your creditworthiness. Strong credit history and score require a diverse range of credit transactions, with the type and depth of credit impacting lenders’ decisions. 

Credit bureaus use algorithms that evaluate payment history, types of credit, and credit mix to determine your creditworthiness, with credit mix carrying a weightage of 20-25% in the credit score. Lenders are unlikely to provide big loans to individuals without credit histories or those with low creditworthiness. 

In such cases, there are many advantages of credit cards as they can help establish a good payment history, depth, and credit mix, thereby assisting you in building a strong credit reputation. 

Importance of Credit Score

A good credit score is crucial when it comes to securing loans or other forms of financing. It increases your chances of being approved and allows you to receive loans with lower interest rates, which can be especially helpful during economic uncertainty when interest rates tend to rise. Many people take the help of credit card and credit card payment strategies to build their credit history.

Although “good” and “bad” credit may look similar, you may not fully understand their significance. The definition of a “good” credit score may differ depending on the lender, but it is generally considered 750 or higher. A good credit score can make a significant difference in your financial life, so striving for a high score and maintaining it over time is essential.

Using a credit card responsibly and not misusing it is a great way to build a credit history. 

Steps to Building Credit History with a Credit Card 

  • Pay on Time, Every Time

Paying on time is the most critical factor in building good credit. Payment history makes up 35% of your score. Make the minimum monthly payment due, and pay off your credit card in full whenever possible. If one skips a due date, one must make the payment as quickly as possible to avoid being reported as late.

  • Keep Your Utilisation Low

Keeping your credit utilisation at 30% or lower is a good rule of thumb. The credit utilisation ratio is how much of your credit limit you use. Maxing out your card may signal that you’re at risk of being unable to repay what you’ve borrowed. Utilisation is calculated for each card and across all your credit cards.

  • Limit New Credit Applications

Before applying for new credit card, one should beware and open limited accounts. Applying for new credit cards generates a hard inquiry, which could knock your credit score down by about five to 10 points. Using a new credit card too often indicates to lenders that you’re desperate, making you a risky borrower.

  • Use Your Card Regularly

While you may want to avoid spending more on your new account than you can afford to pay off, you should make regular purchases on your credit card. Issuers like to see that you’re using your credit card, not leaving it dormant. 

  • Increase Your Credit Limit

Lower your credit utilisation by increasing your credit limit. A higher credit limit gives you more spending flexibility without dramatically increasing your utilisation ratio. With time and responsible behaviour, you can improve your credit limit. You can periodically request a higher credit limit of credit card.


A credit card is a tremendous financial asset for emergencies with many underlying benefits. One of them is building a credit score. But customers should understand that only using a credit card responsibly can increase their credit score. 

Also Read: How To Apply For A Credit Card With No Credit History

In addition to building a credit score, using a credit card properly can also provide other benefits, such as cashback rewards, points, or miles that can be redeemed for travel, and merchandise. However, it’s essential to understand the terms and conditions of the credit card to maximize these benefits.

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