Building Credit with a Credit Card

When used responsibly, credit cards can help build your credit profile.

Ali Hardy Jul 25, 2019

Article originally published on July 25, 2019 and refreshed on March 18, 2021.

If you want to build or bolster your credit, credit cards are an effective way to show lenders that you can manage credit responsibly.

Understanding the Basics of Credit

Each of us has an individual credit history, which includes a credit report and credit score. In general, your credit history tells a lender about your behavior as a borrower. Your credit is reviewed whenever you apply for a loan or credit card, and it typically affects the terms and interest rates you receive if approved.

Your credit history is also used by entities other than lenders to determine your reliability, such as insurance agencies, cell phone carriers, utility companies, prospective employers and landlords.

Your credit report outlines your personal data, accounts you have had and your payment history. In the U.S., three major credit bureaus keep a record of and report this information: Equifax®, Experian™ and TransUnion®, and through April 2021, they are offering free weekly online credit reports. It is recommended that you check your credit report annually and correct or dispute any errors.

Your credit score is another indicator of your trustworthiness as a borrower and your overall credit health. A score typically ranges from 300 to 850 and changes regularly.

Your credit score is determined based on the following criteria:

  • 35%: Payment History: The most significant factor impacting your credit score is whether you pay your bills on time.
  • 30%: Amounts Owed: Another factor affecting your credit score is how much debt you owe in relation to your various credit limits. This percentage is known as your credit utilization rate. As a rule, lower utilization is better for your score.
  • 15%: Length of Credit History: This is the average length of time your accounts have been open. Generally, the longer your credit history, the better.
  • 10%: New Credit: The number of new credit inquiries on your credit report can impact your score. Too many new inquiries over a short period can be viewed as a negative.
  • 10%: Types of Credit: The diversity of account types on your credit report will impact your score. Higher scores typically feature a good mix of revolving and installment debt.

Successful Credit Card Management

For credit cards to build or improve your credit, they must be used responsibly. Implement the following three principles to help your credit card activity strengthen your credit profile:

1. Pay your bills on time. Pay at least the minimum amount required or avoid interest completely by paying off your balance each month. Consider setting up automatic payments so that you don’t miss a payment by accident. Late payments or delinquencies can have long-term negative consequences for your credit.

2. Keep your credit utilization low. Maxing out your cards will not build your credit. But zero balances aren’t necessarily beneficial, either. Many experts believe that a good goal is to keep utilization at or below 30 percent.

3. Avoid applying for too many credit cards at once. If your credit report includes multiple credit inquiries over a short period, it could hurt your credit.

Additional Advantages of Credit Cards

Plastic has its perks! Along with helping to strengthen your score, credit cards have additional advantages, including:

Cost: Depending on the terms of your card, credit cards can be free to use. Keep in mind that this assumes that you are using a card without an annual fee and that you are avoiding interest charges by paying off your statement balance each month. If you are carrying a balance from month to month, and incurring interest charges, your credit card is no longer free.

Rewards: Many credit cards offer rewards, such as cash back or travel points, which can lead to significant savings over time. If you use your card for everyday purchases and pay the balance off each month, credit card rewards can be a major perk. If you find yourself spending more than you normally would so that you can generate rewards, this type of credit card isn’t sensible for your lifestyle.

Built-in Benefits: Credit card issuers often provide additional benefits to cardholders such as purchase and fraud alerts, travel accident insurance and emergency assistance. In addition, most issuers have policies so you are not held liable for unauthorized use of your credit card and will assist you if your card is lost or stolen. 

A Zions Bank credit card* can help you maximize your purchasing power and strengthen your credit score. Visit your nearest Zions Bank branch or apply online.

*Credit Cards are subject to credit approval. Terms, conditions and restrictions apply. See a banker for details.

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