Do Credit Cards Help Your Credit?

Credit card Q&A: “Do credit cards help your credit?”

Put simply, a credit card that is reported to the 3 major credit bureaus will help your credit history, assuming you make on-time payments.

Of course, if you open a credit card and miss a payment, even just one, it could send your credit score plummeting.

That’s why it’s imperative to understand that when you apply for a credit card, you have a responsibility to ensure it is paid as agreed, on-time, every month.

If you follow that simple rule, you will be rewarded with a good credit score, assuming your other lines of credit are in good standing as well.

Conversely, if you let things slip, you could well end up with a bad credit score, all because of one delinquent credit card account.

So be sure to stay on top of payments to avoid any mishaps.

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Credit Cards Are Good for Building Credit

As alluded to earlier, credit cards can be extremely helpful in building your credit history, assuming you pay on time. They also tend to be the easiest lines of credit you can get your hands on, so most consumers generally start building credit with the use of a credit card.

Most “first credit cards” are bank issued, meaning they are granted by the bank you already have a checking/savings account with. It’s easier for banks to “take a risk” on you if they know you have money in an account or two.

You may have also kicked your credit history into gear by being an authorized user on a parent’s credit card. This is a simple way to build your credit without having to be approved the conventional way.

Assuming you can’t get approved for a credit card, there’s always a secured credit card, which is reported to the credit bureaus. Over time, it will build credit and eventually open the door for unsecured options.

Note: Prepaid credit cards do not build credit!

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More Available Credit Will Help Your Credit Score

Theoretically, a credit card should also provide you with more available credit, which will boost your credit score over time.

For example, if you open a credit card with a $5,000 credit limit, that’s another $5,000 you’ve got at your disposal in the credit department.

This means your credit utilization should drop, which should lower your default risk and boost your credit score. Of course, there comes a point when you could have too much available credit, which could make you appear as more of a credit risk.

Both Fico score and VantageScore consider things like balances and available credit, so having an open line of credit with a very low balance should help you in the long run.

But again, if you max out your new credit card limit, you’ll hurt your credit score and wind up in a worse spot than where you started.

Read more: What credit card should I get?