How to rebuild credit using credit cards

Summary

• Credit cards are a valuable tool for rebuilding your credit score when used responsibly.
• Understanding how credit cards affect your credit can help you make smarter choices that positively impact your credit profile.
• Tips to help you improve your credit include applying for a secured credit card, making on-time payments, and keeping your balances low.

Rebuilding your credit is a lot like climbing a mountain after a fall. You might have slipped, but you can still reach your goals with the right tools in hand. For some, a credit card may have been the reason for the slip, but that same card could actually help you get back on track.

Using a credit card responsibly can be a powerful way to help rebuild your credit. As you implement healthy credit habits, you can gradually improve your credit score and unlock better interest rates, making big goals — like buying a home or leasing a car — more attainable.

Whatever your financial goals are, having an improved credit score could help you reach them sooner. Let’s look at how you can use a credit card to work in your favor.

 

Why using credit cards can help you rebuild your credit

Using a credit card to rebuild your credit might seem odd at first, especially if credit card debt is one of the reasons your credit score may need improvement. But it’s more common than you think. Credit card providers typically report your account activity — like on-time payments, credit utilization, and account age — to the three major credit card bureaus (TransUnion, Experian, and Equifax). Being disciplined with your card tells the credit bureaus that you’re managing your money well and helps you rebuild your credit score  over time.

It's also important to keep in mind that information about missed payments and using too much of your available credit also gets reported to the credit bureaus, which can negatively impact your credit score.

 

6 ways to rebuild your credit with credit cards

Whether you’re bouncing back from missed payments, high balances, or a financial setback, there are clear steps you can take to rebuild. Here are six practical ways to get started.

1. Consolidate your credit card debt

You could pay off high-interest credit card debt  by moving the outstanding balances on to a card with a lower rate, like a balance transfer credit card  with a no-interest introductory  period. Consolidating your debt with a card like the U.S. Bank Shield™ Visa® Card,¹ could help you save on interest if you qualify for a lower interest rate than you have on  your existing card. This could also make it easier to manage your monthly payments if you transfer multiple balances to one card.

But before you apply, you’ll want to understand the terms, like how long the no-interest period lasts, what happens to any remaining balance when it's over, and if there are fees for transferring your balance.

Be sure to compare your card options to choose a card with terms that work best for you.

2. Get a secured credit card

Applying for a secured credit card, like the U.S. Bank Altitude® Go Secured Visa® Card, might be a good option if you don’t currently qualify for a traditional credit card.

The main difference between secured and unsecured credit cards is that you’ll pay a refundable cash deposit upfront, which also serves as your credit limit. You can use a secured card for everyday expenses like buying groceries, filling up your car, paying bills, and more — just like a traditional card.

Your account activity is usually reported to the credit bureaus just like any other credit account, which would help improve your credit score as you practice positive credit habits.as you practice positive credit habits.

3. Make on-time payments each month

Making late payments can rack up fees and interest charges that might make it difficult to pay your balance. Plus, your payment history carries the most weight in determining your credit score. So, it’s always a good idea to pay your credit card bill on time each month. Below are some helpful tips to make sure that happens

• Sign up for automatic payments. You can usually set up an automatic payment for either the minimum amount due or your full statement balance. Paying the entire balance is a good way to avoid interest charges.
• Set a reminder on your phone. Many card providers offer a service that sends you a text or email alert when your bill is due. If your bank doesn’t offer this feature, you can set a calendar reminder on your phone.
• Change your due date. If your providers allow it, you could try making all your card payments due around the same day or when it’s most convenient for you. This is typically easier to manage than juggling multiple due dates.

4. Keep your credit utilization low

A credit utilization ratio  is the percentage of available credit you’re currently using, and it’s another key factor in your credit score. As a rule of thumb, you don’t want to use all your available credit. Lenders generally like to see credit usage lower than 30%.²

So, what does a 30% credit utilization ratio look like? Let’s say you have one credit card with a $2,000 limit. A $600 balance would give you a 30% credit utilization ratio.

5. Request a credit limit increase

Asking your bank or card provider to increase your credit limit may help reduce your credit utilization ratio, and you can usually make a request online or through the provider’s mobile app.

However, requesting a credit limit increase may make more sense after you’ve already worked on improving your credit. Your card provider may need to check your credit report (called a hard inquiry), which may temporarily impact your credit score.

6. Become an authorized user

An authorized user is someone the primary account holder adds to their credit card account. Anyone can be an authorized user as long as they meet the card provider’s requirements.

Here are a few ways you can benefit from being an authorized user:

• You get your own card to make purchases.
• The provider typically doesn’t check your credit report before adding you to the account.
• The account holder’s credit history may be included in your credit report.
• Your credit score could improve if the account holder manages their card responsibly.

Although there are many benefits to being an authorized user, your credit might also take a hit if the primary account owner falls behind on payments or carries a balance.

 

What to avoid when using credit cards to rebuild credit

Credit cards can be powerful tools, but like any tool, they need to be used responsibly. Let’s look at a few common mistakes to avoid when rebuilding your credit with a credit card.

Applying for too many cards at once

Credit card applications typically trigger a hard inquiry on your credit report. If you apply for multiple cards around the same time, lenders may think you’re relying too heavily on or struggling to manage your credit cards.

Only paying the minimum amount due

When you only make the minimum payment due, it could take longer to pay off the balance and cost you more in interest.

Carrying a high balance

Not only does a high balance increase the overall interest you pay, but it can also increase your credit utilization ratio. That may decrease your credit score, making it difficult to qualify for future loans or lines of credit.

Taking out large cash advances

Many credit cards charge higher interest rates for cash advances than purchases and balance transfers. Some cards have a cash advance fee, typically between 3% to 5% of the withdrawal.³

 

Rebuild your credit one swipe at a time

Rebuilding your credit is possible. Whether you're aiming to buy a home, qualify for a loan, or simply regain financial confidence, using your credit card wisely may be the tool that gets you closer to your financial goals.

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