Do I Need a Credit Card to Help Build My Credit?

Make sure you can afford your monthly credit card payment before you charge.

Having no credit history is often considered bad. Fortunately, establishing credit can be easy. Even though a credit card is not a requirement for building credit, a credit card is a good tool to help begin boosting your score.

Interest Rates

Credit cards available to those with no credit history are likely to carry a higher interest rate than other cards. Be prepared to pay a higher interest rate on purchases. Make sure you use your card responsibly. You can avoid high interest rates by paying your balance in full each month.

Credit Limit

A credit card company is taking a gamble by issuing a credit card to you when you have no previous credit history. Expect to start with a low credit limit. Some credit cards for first-time cardholders have limits of $300 to $500. If you continue to make your payments on time, the credit card company will most likely raise your limit.

Too Many Cards

Even though credit cards can help build your credit, too many credit cards can have the opposite affect. Creditors are less likely to grant credit to you if they feel you have too many revolving accounts and monthly payment obligations. Stick to no more than three credit cards while trying to establish your credit. You can gradually increase the number of cards over time.

Reporting to Credit Bureaus

Continue making monthly payments on time and the credit card company will begin reporting the activity to the credit bureaus, which report this information to other creditors you have applied to. Most creditors report to bureaus every 30 days.

References

• Bank Rate: Four Burning Questions About Credit Scores
• Privacy Rights Clearinghouse: Your Credit Score--How It All Adds Up

Resources

• Credit Land: Credit Card Applications for Limited or No Credit