How to improve your credit rating with a credit card?
Your credit rating is important. Learning how to improve and maintain it can stand you in good stead if and when you go on to apply for a mortgage or a loan in the future.
So how can you improve your credit score immediately, or start the process of building up a better rating? Actually, one of the simplest ways is by using credit cards to rebuild credit.
Published: 25 Aug 2021
How can a credit card build my credit rating?
A credit card is a way for lenders to see how you manage your credit month-to-month. National credit bureaus, such as Equifax, TransUnion and Experian work with banks, building societies, mobile phone companies and other major retailers to generate a unique report about how likely a person applying for credit is to pay back their loan or credit and managing their money.
Simply put, if you use your credit card regularly and make your payments on time, your credit score can improve over time - if you miss payments, it can decline. So how can you make sure taking out a credit card will help rebuild your credit report? Read on to learn more about the best ways to use credit cards to improve your credit score.
How to get a credit card if my credit is low?
First things first, you’ll need to apply for a credit card. This can be difficult if you have no credit or have a low credit score, but there are dedicated credit cards for bad credit designed to help you start or rebuild your credit score.
These accounts typically begin with lower limits that may increase over time, provided you make your payments on time and keep your balance below your credit limit. as you improve your credit rating. They also offer typically low repayments and allow you to monitor your credit score as you go along.
How do I rebuild my credit score with a credit card?
When using a credit card to build or rebuild your credit score, there are a few essential tips that are fundamental to improving credit health.
Make your payments on time
Making payments in a regular and timely fashion is the most important element to improving your credit score. This doesn’t mean you have to pay off the full amount every time you use your card, but it does mean that you need to make at least the minimum payment on your card every month.
One of the easiest ways to make sure you don’t miss a payment is by establishing an amount that you are comfortable paying, and setting up a direct debit of that amount. If you can pay off the full amount each month, do so, but the main thing is to make at least the minimum payment on time each month and avoid late payments. Most lenders charge a late payment fee, and will notify the credit bureaus. This will have a negative impact on your credit score.
Keep your balance in check
Keeping your outstanding balance as low as you can relative to your credit limit is also important. The proportion of your credit limit being used is known as your utilisation. The lower your utilisation the better for rebuilding your credit.
Ideally, when starting out with a credit card stick to smaller purchases that you can easily pay down with your monthly payments. Avoid going over your credit limit, as this will incur additional fees and charges and have a negative impact on your credit score.
What is the best credit card for building credit?
Your credit score isn’t affected by which credit card you choose. Credit bureaus do not distinguish between cards, only by what your utilisation rate is.
If you keep your utilisation rate low, your credit limit won’t negatively impact your rating. This limit is also likely to be extended if you make regular payments.
Our foundation credit card is specifically for customers wanting help to build and rebuild their credit scores. It offers low monthly repayments, a regular credit limit review, and access to your Tesco Bank Credit View (provided by TransUnion) credit report for three years.
Representative 27.5% APR (variable). Applications are subject to status. Available to UK residents aged 18 and over. Tesco Bank Credit Cards are provided by: Tesco Bank, PO Box 344 Newcastle Upon Tyne, NE12 2GF.
Top credit score myths
Not all credit score information is true. There is a lot of credit score information online which can make it difficult to separate fact from fiction. We’ve debunked a few common credit score myths below.
Closing your credit card account will help your credit rating
Actually, closing your current credit card account will likely hurt your score, especially if you have an outstanding balance. It is much better to pay down your credit card, and then keep it at a low utilisation rate.
Having a healthy bank balance means you have a good credit score
Credit bureaus need a credit history in order to generate a report. If you have never taken out a credit card, or don’t have loan repayments they can reference, that impacts your credit rating.
A bad credit score lasts for life
This is one of the biggest myths surrounding credit scores. The only way you will maintain a bad credit score throughout your life is if you continue to make late payments or max out your limits. If you make steps to improve your credit rating, not only will you see a marked difference immediately, after seven years most negative marks are removed.
The content on this page aims to offer an informative introduction to the subject matter but does not constitute expert financial advice specific to your own situation. All facts and figures were correct at time of publication and were compiled using a range of sources.