How Often Must I Use My Credit Card to Show Activity on a Credit Report?

Use your credit card responsibly to build credit.

Using credit cards is an important way to build your credit history and improve your credit score. This in turn has a positive effect on your financial life, gaining you lower interest rates when you need to take a loan. It's important to know how to use cards most effectively to boost your credit.

Amount of Use

If you are a cautious person who likes to pay cash instead of using cards, you are probably doing well at staying within your budget. But you may not be building your credit score. Substitute occasional use of a credit card each month to buy something you need, and as long as you handle the repayment properly, even this light use of credit will add positively to your credit history. According to Liz Weston at MSN Money, you will get best results if you stick with one of the major card companies: Visa, MasterCard, Discover or American Express.

Payments

Your monthly payment to your credit card company to pay off or reduce your balance is reported to the credit bureaus and will appear on your credit report. It's crucial to pay on time as even a payment that's a day late can amount to a black mark on your credit history. Payments that are 30, 60 or especially 90 days late will drop your score considerably. Ask your credit card company if you can set up an automatic payment from your bank account to pay the full balance and then you won't be penalized if you forget.

Balances

You will get the best result for your score if you pay off your accounts in full each month, leaving no remaining balance. This also means you won't pay any interest, which is great for your budget. If you do need to carry balances, try to ensure that they total less than 30 percent of the credit limits available to you through your cards. This ratio of debt to credit limit makes up 30 percent of your FICO score, so it's important to pay attention to it.

Number of Accounts

While cards can be an important tool to improve your credit, you don't want to open too many accounts. According to Fair Isaac, the company that computes FICO scores, having more than seven open lines of revolving credit is a black mark. This statistically puts you at more risk of declaring bankruptcy, and it will reduce your credit score. It's also important to stick with one card for a long period of time as the age of your longest-standing account contributes 15 percent to your credit score.

References

• MSN Money: Raise Your Credit Score to 740; Liz Weston; September 2010