Credit Cards That Build Credit

Understanding Credit Building

A credit score, typically ranging from 300 to 850, reflects your creditworthiness based on factors like payment history, credit utilization, length of credit history, types of credit, and recent inquiries. Credit cards influence these factors by reporting your payment activity and balances to major credit bureaus—Equifax, Experian, and TransUnion. Responsible use, such as paying on time and keeping balances low, can boost your score over time.

Types of Credit Cards for Building Credit

Several types of credit cards cater to those looking to build or rebuild credit. Each has unique features suited to different financial situations.

1. Secured Credit Cards

Secured credit cards require a refundable security deposit, which typically sets your credit limit. They’re ideal for beginners or those with poor credit, as issuers report activity to credit bureaus, helping establish a positive payment history.

• Example: Discover it® Secured Credit Card

  • No annual fee

  • Cashback rewards (2% at gas stations and restaurants, 1% on other purchases)

  • Deposit (e.g., $200) determines credit limit

  • Potential to transition to an unsecured card after responsible use

• Pros: Accessible with bad or no credit, builds credit with consistent payments

• Cons: Requires upfront deposit, often has higher interest rates

2. Student Credit Cards

Designed for college students with little to no credit history, these cards offer low credit limits and rewards tailored to young adults.

• Example: Deserve® EDU Mastercard for Students

  • No annual fee

  • 1% cashback on all purchases

  • No Social Security Number required for international students

  • Reports to all three credit bureaus

• Pros: No credit history needed, student-friendly perks

• Cons: Low credit limits, may have higher APRs

3. Retail Store Credit Cards

Retail cards are often easier to qualify for and can help build credit, though they’re limited to specific stores and may have high interest rates.

• Example: Target REDcard™ Credit Card

  • No annual fee

  • 5% discount on Target purchases

  • Reports to credit bureaus

• Pros: Easier approval, store-specific rewards

• Cons: High APR, limited usability outside the retailer

4. Unsecured Cards for Bad Credit

These cards don’t require a deposit but often come with higher fees and interest rates, targeting those with credit scores below 600.

• Example: Credit One Bank® Platinum Visa® for Rebuilding Credit

  • Annual fee (varies, e.g., $0-$99)

  • 1% cashback on eligible purchases

  • Reports to all three bureaus

• Pros: No deposit required, builds credit

• Cons: High fees, low initial credit limits

5. Authorized User Cards

Becoming an authorized user on someone else’s credit card (e.g., a parent or spouse) allows you to benefit from their positive credit activity without being responsible for payments.

• Pros: No application or deposit needed, can boost credit quickly

• Cons: Dependent on primary cardholder’s habits, not all issuers report authorized user activity

How to Use Credit Cards to Build Credit

To maximize credit-building potential, follow these best practices:

1. Pay on Time, Every Time: Payment history is the largest factor in your credit score (35%). Set up autopay or reminders to avoid late payments.

2. Keep Credit Utilization Low: Aim to use less than 30% of your credit limit (e.g., $60 on a $200 limit). Pay off balances monthly to minimize utilization.

3. Monitor Your Credit Report: Check reports for errors using free services like AnnualCreditReport.com. Dispute inaccuracies promptly.

4. Limit New Applications: Each application triggers a hard inquiry, which can temporarily lower your score. Apply sparingly.

5. Use the Card Regularly: Light, consistent use (e.g., small recurring charges) keeps the account active and demonstrates responsibility.

Choosing the Right Card

When selecting a credit card, consider your financial situation and goals:

• No Credit: Opt for secured or student cards with no annual fees and rewards.

• Bad Credit: Compare secured cards and unsecured cards for bad credit, prioritizing low fees.

• Rewards vs. Cost: Cards with rewards (e.g., cashback) can add value, but avoid those with high fees that outweigh benefits.

• Upgrade Potential: Some secured cards offer a path to unsecured cards, refunding your deposit after consistent responsible use.

Common Mistakes to Avoid

• Maxing Out the Card: High balances increase utilization, harming your score.

• Missing Payments: Late payments can stay on your report for seven years.

• Closing Old Accounts: Keeping older accounts open lengthens your credit history.

• Ignoring Fees: High annual or monthly fees can erode financial gains.

Conclusion

Credit cards tailored for building credit—such as secured, student, or retail cards—offer accessible tools for establishing or repairing your credit score. By choosing the right card, using it responsibly, and avoiding common pitfalls, you can steadily improve your creditworthiness. Regularly monitor your progress and adjust your strategy to achieve long-term financial success.