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How Do I Use A Credit Card To Improve My Credit Score?

Daniel Teo

Mar 20, 2020 4 min read

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Paying with credit card

What do a cell phone plan and an apartment lease agreement have in common? They both require you to have a decent credit score to close the deal. The better your credit score, the better your chances are of getting approved.

It’s no secret that higher credit scores can translate into perks like better interest and insurance rates. But practically speaking, we don’t all start out with good credit. It takes some work to build good credit.

Whether you’re new to borrowing with credit or trying to qualify for a personal loan, these tips will help you use a credit card to improve your credit score.

Credit card accounts

Pick the right credit card and stick to it

Your credit score tells potential lenders how good you are at managing your debt. If you’ve never had a credit card, lenders won’t know anything about you and you won’t have a credit score.

Fortunately, guaranteed or secured credit cards are specifically designed for those looking to build or restore credit. Do some homework and pick a card that meets your needs. Rewards and extras for these type of credit cards won’t be as exciting as top tier cards, but they’ll serve as a good starting point for building up your credit score.

If you're looking for a secured card to help improve your credit history, Refresh Financial's Secured Card is a great option. No credit check is required, and annual interest rates are lower than similar secured credit cards in Canada. Refresh's Secured Card is a great option for new Canadians with no established credit or anyone with low credit.

Once you’ve been approved, commit to the credit card and use it responsibly. Frequent credit card applications may hurt your score because it looks to creditors as though you’re seeking more and more new credit. 

Pay your credit card bill on time

The most important thing you can do with your credit card to improve your credit score is to make minimum payments on time. This shows potential lenders that they are not at a risk of losing money.

35% of your credit score is calculated based on your payment history; the more often you pay on time, the better your score. On top of that, making payments in full will go that much further to increase your score.

Minimum payment

Keep your credit balance low

The next 30% of your credit score is calculated based on your credit utilization ratio. The ratio compares the amount you owe to the total amount you can borrow. The more you borrow suggests you may be extending yourself more than you can manage.

A healthy credit utilization keeps your credit card balance less than 30% of your total credit. For example, let’s say you have two credit cards with a combined limit of $5,000. Keeping your balance below $1,500 ($5,000 x 30%) would help to increase your credit score.

It’s important to note that you can have high utilization even if you pay off your bill in full, depending on the random time of the month your credit score is calculated. Keep an eye on your credit utilization: if it gets close to 30%, a mid-month payment to keep the ratio low could help improve your credit score.

Keep your credit accounts open

Lenders want to be confident in your ability to use credit responsibly and will look at how long you’ve been borrowing. 15% of your credit score is based this credit history.

Opening and closing credit cards for promotional offers and sign up bonuses can hurt your credit score. If you have to close a card, remember that it can reduce the time lenders think you’ve had credit. The longer you have these accounts open, the better your credit score will be.

Improve your credit score

How can I improve my credit score?

Credit cards, when used strategically, can go a long way towards improving your credit score.

To raise your credit score with a credit card:

  • Find a guaranteed or secured credit card and stick with it (responsibly).

  • Make minimum payments on time. If you can, pay off the balance in full.

  • Keep your credit utilization under 30% with a mid-month payment if needed.

  • Keep your oldest account open.

The Bottom Line

Building or repairing your credit score can seem like a daunting task. With the right approach and responsible use, credit cards can be used as a tool to unlock the benefits that come with having a good credit score. As always with credit cards, be cautious of overspending- misuse will hurt your credit score and can lead to expensive late fees and interest charges.

Have you checked your credit score through Borrowell? You should know your credit score. Finally, it’s free! 

Editor's note: This post was originally published in March 2018 and has been updated for accuracy and comprehensiveness.

Daniel Teo headshot.
Daniel Teo
Personal Finance Expert

Daniel Teo is a personal finance expert and travel writer based in Toronto. With a passion for financial literacy and travel, his stories touch on what’s possible when you achieve financial goals. His work has appeared in The Globe and Mail, the Toronto Star, and CBC.

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