Sticking to a budget when you use credit cards is possible. Follow these tips to stay on track with your budget—and your credit.
Updated Aug. 11, 2021, at 1:45 p.m. CT
- Why does my credit matter?
- What makes up my credit score?
- What’s the best way to build credit?
- What doesn’t help my credit?
- Ready to build your credit?
Your ability to get a loan, rent an apartment, buy a cell phone or even get a job might all depend on … your credit score. The higher your score, the better. But what’s the best way to build credit so you have a solid score when you need it?
The world of credit can seem complex, mysterious and downright intimidating.
But the good news is there are steps you can take to establish solid credit, rebuild your credit or maintain the score you’ve worked hard to get.
And we have the research to back that up.
In addition to helping our members one-on-one with their credit, we’ve hosted three credit-building competitions with our members to learn the best way to build credit. Find out what’s worked—and what hasn’t—for our members so you can build your score as high as possible too.
Why does my credit matter?
In adulthood, your credit becomes one more way that others evaluate how responsible you are.
Do you pay your bills on time? Do you only borrow what you can pay back?
These actions play into your three-digit credit score. Scores typically range from 300 to 850. And the higher your score, the better you look as a potential borrower, customer or job candidate.
What makes up my credit score?
It’s hard to build credit if you don’t know what makes up your credit score.
Five main categories help create your unique score:
Your credit score changes with time and how you handle your credit. Past problems—like a late bill—fade away as time goes by and you take credit-building steps.
What’s the best way to build credit?
It’s hard to get credit if you don’t have a credit score. It doesn’t make sense, does it?
But there are ways to get your foot in the credit world and steadily build a stellar score.
Use the right tools
Opening a credit card—and using it correctly—is one of the best credit-building tools available, according to the credit bureau Experian.
And that’s the tool we used for our racers in our Great Credit Race competitions. Each participant received a Dupaco Visa credit card with a $1,000 limit to establish and build their score.
If you’re just starting out like our racers, your score will be largely swayed by how you use your card each month.
But not all credit cards are created equal. So it’s important to choose a card that has your best interest in mind.
Another option: A loan specifically created to help you build your credit or repair damaged credit.
With Dupaco’s Credit Coach Loan, the money you borrow is held in your savings account during the term of your loan. As you make payments, you also earn interest dividends. Once you pay your loan in full, you have access to the funds (hello, savings!)—and a stronger credit score.
Make payments on time
The most important thing you can do is make your payments on time.
If you’re concerned about missing a payment, autopay options can help you be on time every time. You can also ask your providers and lenders if you can choose a due date that works best with your monthly budget.
Pay off your credit card balance
Try to pay off your credit card balance in full each month.
Not only can this help you build and maintain a good credit score, but you’ll avoid paying interest.
Use a small amount of your credit limit
If you decide to use a credit card to build your credit, your credit card company will give you a credit limit. That’s the most you can borrow on your card at any given time.
But your score will be higher if you use just a small percentage of that available balance. This was the case in our credit competitions as well.
“The ones with credit scores on the higher end most certainly had zero to low credit card balances,” said past race coach Katie Fisher. “One of my racers consistently charged $0 to $50 a month. And his score continued to steadily increase.”
National research supports this.
Ethan Dornhelm, vice president of scores and predictive analytics at FICO, told the Washington Post that “recent company research has shown that the highest-scoring 25% of U.S. consumers—those with a FICO score above 795—use, on average, 7% of their credit limit. The average revolving utilization for consumers with a perfect 850 credit score was 4.1%.”
Make frequent payments
Our members who built the highest scores during our competitions paid off their credit card balances immediately. Rather than wait for a monthly statement, they paid down their balance throughout the month to always keep a large amount of credit available.
“They made sure that they were spending within their means,” said former race coach Noah Kachelski. “Almost everybody who was in the high 600s or low 700s didn’t use the card just to use it. They used it deliberately, whether it was getting gas or getting some food and then paid it off right away.”
Kachelski told his racers to pay off their balances each time they use their card. Why?
It also had the potential to help them another way:
“What people don’t always know about credit cards is that it’s the balance at the time your credit card is reported to the credit bureaus that matters and directly affects your score,” Kachelski said.
Credit card companies and other lenders report your account information to credit bureaus at different times each month. So, even if you plan to pay off your balance before your due date, a higher balance could be reported to the bureau before you’ve paid it off.
And when you’re just starting to build credit, it matters even more, Fisher said.
“When you have just one credit card, it’s a whole lot different than someone with established credit and higher limits on multiple cards,” she said. “There are so many factors. That’s what makes credit so complicated.”
Keep old accounts open
As you move along in your credit journey, it’s typically best to keep old credit cards open—even if you no longer use them. That’s because the longer your credit history, the better your credit score can be.
Keep an eye on your credit
As soon as you have credit, it’s important to keep tabs on it.
Using a free credit monitoring service like Bright Track can help you keep an eye on your credit score, watch for mistakes on your credit report and learn what actions are moving your score up or down.
What doesn’t help my credit?
Carrying higher balances
If lower credit card usage boosts scores, it makes sense that higher credit card usage lowers scores.
That especially impacted our racers who didn’t pay off their balances each month.
“Overspending is definitely the thing that hurt racers the most,” Kachelski said. “You don’t want to pay interest on your credit card, because then you’re spending even more for the things you’re buying. And your score will hurt because of it, which is the opposite of what we are trying to do.”
But there’s an encouraging finding to note.
Fisher noticed that one racer nearly maxed out his credit card one month. His score reflected as much. But the next month, he paid off his balance, and his score quickly climbed again.
“That fluctuation was interesting to see,” Fisher said. “It showed that your credit score isn’t done for just because you maxed it out once. As soon as you get it paid, it will rebound. And it rebounds nicely.”
Remember, slow and steady wins the race to building good credit. You’ll want to avoid opening multiple credit accounts at the same time. This can be a red flag to lenders, who might be less likely to approve you for a new loan.
With our credit competitions, our members fared better by keeping things simple with a single credit card in the beginning.
Ready to build your credit?
Building your credit is a journey. It takes patience, consistency and dedication.
If you fall along the way, your credit score doesn’t have to stay that way forever. Learn from your past, and keep moving forward.