Optimal way to use a credit card to build better credit?
"First I would like to say, do not pay credit card companies in an attempt to improve your credit rating. In my opinion it's not worth the cash and not fair for the consumer. There are many great resources online that give advice on how to improve your credit score. You can even simulate what would happen to your score if you did ""this"". Credit Karma - will give you your TransUnion credit score for free and offers a simulation calculator. If you only have one credit card, I would start off by applying for another simply because  $700 is such a small limit and to pay a $30 annual fee seems outrageous. Try applying with the bank where you hold your savings or checking account they are more likely to approve your application since they have a working relationship with you. All in all I would not go out of my way and spend money I would not have spent otherwise just to increase my credit score, to me this practice is counter intuitive. You are allowed a free credit report from each bureau, once annually, you can get this from www.annualcreditreport.com, this won't include your credit score but it will let you see what banks see when they run your credit report. In addition you should check it over for any errors or possible identity theft. If there are errors you need to file a claim with the credit agency IMMEDIATELY. (edit from JoeT - with 3 agencies to choose from, you can alternate during the year to pull a different report every 4 months. A couple, every 2.) Here are some resources you can read up on: Improve your FICO Credit Score Top 5 Credit Misconceptions  9 fast fixes for your credit scores" Great question.  First, my recommendation would be for you to get a card that does not have a yearly fee. There are many credit cards out there that provide cash back on your purchases or points to redeem for gift cards or other items. Be sure to cancel the credit card that you have now so you don't forget about that yearly fee. Canceling will have a temporary impact on your credit score if the credit card is your longest held line of credit.  Second, it is recommended not to use more than 20% of all the available credit, staying above that line can affect your credit score. I think that is what you are hearing about running up large balances on your credit card. If you are worried about staying below the 20% line, you can always request a larger line of credit. Just keep paying it off each month though and you will be fine.  You already have a history of credit if you have begun paying off your student loans. "I answered a similar question, How will going from 75% Credit Utilization to 0% Credit Utilization affect my credit score?, in which I show a graph of how utilization impacts your score.  In another answer to Should I keep a credit card open to maintain my credit score?, I discuss the makeup of your score.  From your own view at Credit Karma, you can see that age of accounts will help your score, so now is the time to get the right cards and stay with them.  My background is technology (electrical engineer) and MBA with a concentration in finance. I'm not a Psychology major. If one is undisciplined, credit can destroy them. If one is disciplined, and pays in full each month, credit is a tool.  The quoting of billionaires is a bit disingenuous. I've seen people get turned away at hotels for lack of a credit card. $1000 in cash would not get them into a $200/night room. Yes, a debit card can be used, but the rental car and hotel ""reserve"" a large amount on the card, so if you don't have a high balance, you may be out of town and out of luck.  I'll quote another oft-quoted guru: ""no one gets rich on credit card rewards."" No, but I'm on track to pay for my 13 year old's last semester in college with the rewards from a card that goes right into her account. It will be great to make that withdrawal and not need to take the funds from anywhere else. The card has no fee, and I've not paid them a dime in interest.  By the way, with 1-20% utilization ideal, you want your total available credit to be 5X the highest monthly balance you'd every hit.  Last - when you have a choice between 2% cash reward, and the cash discount Kevin manages, take the discount, obviously." In addition to the already good answers: I am assuming you are playing a long game and have no specific need for a high credit score in the next couple of years.  This list is just good practice that will raise you score. "Or here's a better idea: don't have a credit card at all.  They offer no real benefits and plenty of dangers.  Don't take my word for it, though: ""I tell every student class I get, high school students, university   students, you know, they'd be better off if they never used credit   cards""   - Warren Buffet (Net worth: $44 billion) Before anyone says anything about using credit cards ""wisely"" and getting the rewards points, I can save 15% on many kinds of large purchases ($100+) using cash.  You won't find a reward system offering that level of incentive.  Two recent examples of cash discounts: After I bought my house I needed a lawnmower and a my wife wanted a new vacuum cleaner.  Went to Lowe's and found the ones we wanted.  They were $600 combined.  Found the manager, stuck five $100 bills in his hand and said ""this is what I have, and that is what I need.""  16.6% saved. Bought my daugher a bed recently. Queen box spring and mattress were on sale for $300 but it didn't come with the rails, which they wanted $50 extra for.  Went to the bank and got $320 in cash from the bank, walked in, set it in his hand and said, ""I need the bed box spring and rails, tax included.""  He replied, ""Sorry man, I can't.  I'm already taking a loss on..."" Then he stopped mid sentence, looked down at the cash again and said ""Hold on. Let me ask my manager."" Manager walks over, guy explains what I said, manager looks at the cash and says ""Make it happen""  14.3 % saved. As for purchasing a home, it is a myth that you need a credit score to obtain a mortgage for a home.  Lending institutions can do manual underwriting instead of just relying on your credit score.  It is a little tougher to do and banks usually have stricter requirements, but based on the information the OP has given in this and other questions, I think he can easily meet them." If you have self control and a good handle on your finances, which it sounds like - I suggest the following: Note: #3 is important - if you're not able to pay it off each month don't do this because it will cost you a lot in interest. Make sure to check how interest is calculated in case you don't pay it off in full or miss the due date for a month. If you can do this you'll earn some good benefits from the card using money that you're going to spend anyway, as well as build your credit profile. Regarding annual fees - Most business credit cards do not report to the personal credit report unless the person pays the card late. Given that fact, any debt carried on these cards does not hurt the credit score if it is not reported. You can carry credit card debt on these cards without hurting your credit score. Just apply for business credit cards now to start building this segment of your credit.
"Build your credit history by paying the credit accounts you have on time.  Review these periodically and close the ones you do not need. Ignore your score until it is time to make a large purchase.   Make decisions regarding credit on the basis of whether the debit would be better paid with cash or credit.  Not on credit score. Keep in mind that if your income is invested in your future, your money is working for you.  The income that is paying debt is working for the lenders. Mint is a financial services industry company (Intuit).  You are their product.  Intuit makes money from Mint by placing ads on the site where you visit frequently, and by gathering data about those who subscribe to their service.  They also are paid to refer you to credit card companies to ""build credit.""" "Congratulations!  It sounds like you're off to a good start.  Establishing credit history and starting a Roth IRA now and getting some investment in at this point is likely to save you a great deal later on.  A good way to diversify investments in a Roth IRA is to use ETFs, especially index funds, which bundle a whole bunch of diverse investments together into one symbol that you can get into with a single transaction fee (""commission"").  As a small piece of advice, if there's inaccurate information on that credit card (e.g. balances due and payments made) showing up on your credit report, don't ask the credit bureaus to correct that data as long as the rest of the information shows generally good standing - they'll just remove the whole thing.   If you have the discipline to pay off your credit card balance in full every month, and view credit card purchases as electronically spending cash, you could consider applying for a credit card of your own to help build that credit history further.   Also, welcome to this site; feel free to check it out as you learn more. Planet Money might also have some interesting ways to learn about these topics.  Finally, don't forget to regularly let your parents know how much you appreciate all they're doing for you. :-)" Carrying a small balance is generally better for your credit score that paying off in full every month by virtue of the statistics and models that give you a credit score for a certain product. Banks don't want to lend to customers that aren't going to be profitable, in my experience customers who can show that they have credit over time are generally awarded a higher score. So my advice would be to keep a small, manageable balance on the credit card, paying off the balance and then spending a little again on the card to keep at roughly constant balance. This revolving credit is the purpose of the product, and by showing you can use it sensibly, you will be rewarded over time. Source: I build credit scoring models for a big UK lender, specialising in credit cards and personal loan modelling. It used to be quite easy for students to get credit cards. When I was in college in the early 1980s, credit card companies set up tables in the student center and offered low-limit cards along with free t-shirts on an almost daily schedule. The Credit CARD Act of 2009 made this much more difficult for banks. If you have a bank or credit union account, the first thing I would do is talk to them about getting a card. Some banks offer a VISA Student Card specifically for college students. My daughter was able to get one when she turned 18, just before starting college. The credit limit is very low ($200 for freshmen, increasing each year until the limit is $500 during senior year). After graduation, it converts to a regular VISA account with a limit that depends on post-graduation income and the now established 4 years of credit history. The VISA web site has a list of banks offering this type of card. Now I will give you the same unsolicited advice I gave my daughter, and the same advice I think most others here would give you. For building credit, this kind of card is excellent, but you should still use it very sparingly, and pay off the balance every month. Make it a hard rule to never pay interest on a credit card bill. I told her to charge perhaps one or two purchases totaling no more than $25-$50 each month, and pay them off as soon as the statement arrives. This is much easier if you have a deposit account at the same bank, since you will be able to pay the bill instantly on line. Have your employer direct deposit your paychecks into that bank account, if at all possible. i'm asking for your support for the latest post contributed by my friend, alex smith, to www.badcreditcreditcardsite.com. it offers great tips you can surely use when managing your bad credit card account. hope you can read it and share it with all your friends, especially with those who are currently managing bad credit-credit cards. thanks a lot! "A credit card is basically a ""revolving"" loan, in which you're allowed to borrow up to a certain amount (the limit), and any time you borrow, you pay interest.  If you were to *borrow* $100 to pay for something via a credit card, you'd have a $100 balance on the card. If you then pay $70 cash to the card, there would be $30 remaining.  That $30 balance could accrue interest. The timing of that interest charge could vary. The 20% you've quoted is almost certainly ""APR,"" of which the ""A"" stands for ""annual,"" so that 20% would be an annual rate.  It makes the most sense, mind you, to keep a minimal balance on a credit card, as the interest rate is higher than most other loans." First, make sure you have some money in a savings account that you can use instead of credit cards for making future purchases that go beyond what you have in your checking account. $1000 is a good amount to start with, so just take that out of the $5000. Then pay off the Best Buy card. You shouldn't be worried about the minimum payment. Determine what you can pay per month (say, $400), and take the minimum payments out of that. Then choose one card to get the rest of your $400, plus the remaining $1500 of your $5000. This should be the highest-interest card, mathematically, but it may or may not be your best choice; it depends on your personality. Some people get a psychological lift out of seeing debts disappear, and it gives them more motivation to keep going. Those people may be better served by paying off the smallest debts first, to get them out of the way. I'm an INTP, so it bothers me more to think that I'll be paying a little more in interest over the long term by taking that route. If you want to ensure that you stop paying interest, the best thing to do is to not use the card for a full billing cycle.  Calculating credit card interest with precision ahead of time is difficult, as how you use the card both in terms of how much and when is critical.