Using a credit card to improve credit score

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Using credit is important to your credit rating.
Whether you're applying for a new credit card, renting an apartment, or taking out a mortgage, your credit score is a good indicator of your ability to repay the money you borrow. It is important to help you get a loan, a mortgage, and even a credit card.

The good news is that there are many ways to build and improve your credit score with a credit card. And understanding what makes up your credit score, why it matters, and how to establish and improve it can make it easier to get loans and credit cards now and in the future.
What is a credit score?
Simply put, your credit score demonstrates your ability to borrow money and repay it responsibly. It is a three-digit number that is often looked at by banks, credit card companies, and lenders to determine how much money they are willing to lend you, and at what rate. It's based on important things from your credit report, such as your payment and credit history, the amount of credit you're using, and any debt you have, which help gauge the likelihood of you paying back your loans. . Understanding how it all works will help you establish and maintain a good credit score in the future.
Why is it important to have a good credit rating?
Since your credit score indicates how likely you are to pay your bills, it helps lenders decide whether or not to lend you money. Along with other factors, a good credit score can help you get better interest rates, increase the likelihood that your applications for new credit cards or loans will be approved, and help you get higher credit limits. high. If you are already an RBC Online Banking client, you may be able to check your credit rating in Online Banking.
How to build or improve your credit report using a credit card
If you don't have a credit score, or if it's too low for you, using a credit card can be a great way to improve or establish your credit score. Staying within your credit limit and paying your bills on time each month are just a few examples of what you can do to improve your credit score, simply by using your credit card responsibly.
Apply for a credit card that matches your spending goals
One of the first steps in selecting a credit card is finding the one that best suits your budget and spending needs. First, apply for a card with a credit limit higher than your spending needs. Why? Because getting close to or going over your limit each month can hurt your credit score. Then choose the benefits that matter most to you. For example, Cash Back cards can help offset the cost of expenses, while some Rewards cards allow you to use your points to help pay off the balance owing each month. We also offer options for cards with no annual fee, travel, and even cards with lower interest rates if you need to carry a balance. RBC can help you find the right credit card for you from our wide selection.
Understand how well you are using your available credit
Your credit utilization ratio compares how much of your credit card limit you use, for each billing cycle. You can calculate the ratio by dividing your total credit card statement balance by your total credit card limit. For example, if your credit card bill is $800 and your limit is $1,000, your credit utilization ratio is 80%. A lower figure ( a ratio below 30% is considered good and a ratio below 7% is ideal) shows that you manage your available credit well. A single month of big-spending won't have a big impact on your ratio, but try not to make it a habit. Keep an eye on your credit utilization ratio so you know how much money you borrow on average.
Pay your credit card bill every month
Paying your bill each month will help you establish a track record of being consistent in paying off your debts. You can pay off the full balance, make the minimum payment, or fall somewhere in between, but it's important to know how much of your available credit you're using per billing cycle. If you carry a balance, try to keep it below 30% of your total available credit. This will avoid harming your credit rating and will also help to minimize the amount of interest you will have to pay. But if you frequently carry a balance, we can teach you how to lower your credit card interest payments with one of our low-interest credit cards. It's best to pay off your balance in full, but it's equally important to make your payments on time each cycle and stay within your available credit limit. Doing so will set a pattern for how you handle your payments, which will play a big role in whether lenders decide to allow you to borrow more money in the future.
Make your payments on time
Lenders look closely at your payment history to ensure that you repay your loans on time and in full. Since payment history accounts for approximately 35% of your credit score, a history of late payments can have a significant impact on your credit score. RBC Online Banking or the RBC Mobile app are handy tools that help you pay your bill immediately or schedule recurring payments. Payments can also be made over the phone or by mail, and in-person at a branch. RBC makes it easy to pay your credit card bill so you can focus on what matters most to you.
Use your credit card as a tool, not a borrowing mechanism
You can use your credit card to build or improve your credit score, manage your expenses, earn points or cashback, and more. You must use your card at least once a month when trying to establish your credit rating, but be sure to make purchases that you can repay at the end of each month. When you carry over a balance to the next billing cycle, you will pay interest. In addition, an excessively high credit utilization ratio can affect your credit rating. Instead of using your credit card as a way to borrow money, see it as a shopping tool with different types of benefits. Some credit cards have much higher interest rates than other borrowing methods; you could end up having to repay much more than the amount borrowed.
Establishing a credit score takes time and patience
There is no silver bullet when it comes to building and improving your credit rating. Rushing the process is more likely to have the opposite effect. Applying for multiple cards in a short time can result in automatic denial, and repeated submissions to your credit bureau can hurt your credit score. Instead of looking for a quick fix, try to take a long-term view. Strive to meet your existing credit card obligations, such as paying your bill on time each month, maintaining a reasonable credit utilization ratio, and using your credit card responsibly. Your credit report remains on your file for years, so you have to be patient before you see an improvement in your score.

A responsibly managed credit card can help you build and improve your credit rating, helping you get more loan approvals in the future. Are you ready to use a credit card to build your credit score? Our credit card selector can help narrow down the choices to find the credit card that's right for you.

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