Matt About Money

Steps to build good credit with your first credit card


Whether you are a U.S. national or not, you need to follow the same steps to building good credit by responsible use of your first credit card

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Question for the expertDear Opening Credits,
Hi, I recently got my first credit card about three months ago with a limit of $1,000. I am planning to get a second credit card to boost my score. Since I have not had a credit card for long, my score would not be so high right now. So I am confused. Should I apply for a card right now or wait for some time when my credit score improves and my chances increase of getting accepted for a second credit card? Also, if my application gets rejected, does it harm my credit score? (I am not a U.S. national; however, I have an Social Security number and pay taxes.)  — Harpreet

Answer for the expert

Dear Harpreet,
Baby steps, my friend, baby steps! This is not the time to start trying to run the credit race, but to learn how to walk gracefully with the plastic you have.

Now, I’m not implying that you can’t manage a credit card perfectly from the get-go. You may be a natural wiz and will never make a mistake. However, this is your opportunity to prove that you are an awesome borrower to your current card issuer and to future lenders. You have a grand to play with and if you’re like most people, that line should be more than enough to buy what you need and repay with ease.

First, know how much money you have coming in and how much is going out in expenses. All sorts of fabulous software programs and smartphone apps are available to  help you with this task, but you can also just take a piece of paper and write everything down.

Once you understand your cash flow and are sure you can afford everything you need and want (or at least need), choose one of the expenses to charge. For example, it could be your monthly grocery bill, or what you spend on clothes or drugstore items. Whatever you decide, use the card to pay and then send the entire amount you spend by or before your card’s due date. Yes, you’ll be allowed to pay less, but ignore the requested minimum payment amount. Your aim is to stay completely paid up.

When you charge regularly and pay in full and on time, you are creating a fantastic history of using credit responsibly. Your FICO score goes up, too. Other financial institutions will look at your score and use that to determine their risk factor when lending you money. The higher your numbers are (the FICO score range is 300 to 850), the less risky you appear.

Most of a FICO score depends on your payment pattern (35 percent) and overall balance-to-credit (30 percent). The longer you do those two things right, the better your score will become, since length of credit history is next in line for importance (15 percent).

After that, it’s types of credit used (10 percent), which is where getting another credit card or loan can come in. Using a variety of credit products well is beneficial. When your score is nice and high — the mid- 700s is considered excellent — go for a new account that comes with a rewards program that suits your lifestyle. Perhaps you like to travel and would like to earn points for miles.  Or maybe you want cash back on purchases. It’s up to you. Just make sure you apply for the credit card you’re likely to get, since credit inquiries are the last scoring factor (10 percent) and this section can be negatively affected by over applying.

Finally, keep a close watch on what’s being listed on your consumer credit reports. Pull them for free from once a year. FICO scores cost about $20, but if you’re going to be in the market for a new credit line or loan, you’ll need to see where you stand. Knowing your status is the key to applying for just the right product.

Oh, and all this advice is good for citizens and noncitizens alike.

See related: FICO’s 5 factors: The components of a FICO credit score

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