Building Credit with Your First Credit Card: A Step-by-Step Guide

Building credit from scratch can seem daunting, but using a credit card responsibly is one of the most effective ways to establish a positive credit history. Whether you’re a young professional just starting out or someone who has never used credit before, this guide will walk you through the process of building credit with your credit card for beginners.

Understanding Credit and Credit Cards

Before we dive into the specifics of building credit with a credit card, let’s first understand what credit is and how credit cards work.

What is Credit?

Credit is essentially your ability to borrow money and pay it back over time, usually with interest. Your credit history reflects how well you manage debt, which is crucial for obtaining loans, credit cards, or even renting an apartment in the future. For those who want a credit card for beginners, understanding credit is the first step in building a healthy financial future.

Types of Credit Cards

There are several types of credit cards available, each catering to different needs and credit profiles:

• Secured Credit Cards: These cards require a cash deposit that acts as collateral and usually equals your credit limit. They are ideal for building credit from scratch.
• Unsecured Credit Cards: These cards do not require a security deposit but are harder to get if you have no credit history.
• Student Credit Cards: Designed for students, these often have lower credit limits and may offer rewards tailored to student spending habits.
• Hybrid Cards: These combine features of debit and credit cards, sometimes requiring no credit check.

Steps to Build Credit with a Credit Card

Now that you have a basic understanding of credit and credit cards, let’s look at the steps you can take to build credit with your credit card for beginners.

1. Apply for a Secured Credit Card

If you’re starting with no credit history, a secured credit card is often the best option. Here’s why:

• Secured cards are backed by a cash deposit, which equals your credit limit. This deposit minimises risk for the issuer, making it easier for you to get approved.
• By using a secured card responsibly and making timely payments, you can build a positive credit history.

When choosing a secured card, consider factors like annual fees and ensure that the card issuer reports to all three major credit bureaus (Experian, Equifax, TransUnion). Check out the credit cards offered by Airtel Finance to find a card that suits your needs.

2. Become an Authorised User

Another way to start building credit is by becoming an authorised user on someone else’s credit card account, such as a parent or spouse. This is an excellent option for those just starting and can act as a helpful first credit card tip. Here’s how it works:

• The primary cardholder adds you to their account, and you receive a card with your name on it.
• You can benefit from their credit history and on-time payments without the legal responsibility of paying the bill.
• This option doesn’t require a credit check, making it a good choice if you have no credit.

However, make sure the primary cardholder has a good credit score and uses their card responsibly, as their credit habits can impact your credit too.

3. Use Your Credit Card Responsibly

Once you have a credit card, it’s crucial to use it responsibly to build a positive credit history. Here are some first credit card tips to help you get started:

• Make small purchases that you can easily pay back in full each month. This demonstrates your ability to manage credit effectively.
• Always pay your bill on time to avoid late fees and negative credit reporting. Consider setting up automatic payments to ensure you never miss a due date.
• Keep your credit utilisation low, ideally below 30% of your credit limit. This shows lenders that you can manage debt responsibly without overspending.

4. Monitor Your Credit Score

As you work on building credit, it’s important to regularly monitor your progress. Here’s what you should know:

• You’re entitled to one free credit report from each of the three major bureaus annually. Visit AnnualCreditReport.com to request yours.
• Review your reports for errors or signs of fraud, and dispute any inaccuracies you find.
• Consider using a free credit monitoring service to track your score over time. Airtel Finance offers a free credit score check that you can access through the Airtel Thanks app.

To know how to improve your credit score, focus on maintaining a low credit utilisation ratio, making timely payments, and avoiding late fees. Each of these actions can have a positive effect on your credit score over time.

Source: CIBIL

By monitoring your credit score regularly, you can gauge your progress and identify areas for improvement.

Building Credit Takes Time and Consistency

Building credit from scratch is a gradual process that requires patience and consistent good habits. Don’t expect your score to skyrocket overnight; it can take several months to a year of responsible credit use to see significant improvement.

Here’s an example scenario to illustrate the process:

Rahul, a 22-year-old college graduate, has never used credit before. He applies for a secured credit card with a ₹10,000 limit and puts down a ₹10,000 deposit. Rahul uses his card for small purchases like groceries and bills, always staying below 30% of his limit. He sets up automatic payments to pay his bills in full each month.

After six months of responsible use, Rahul’s credit score has improved from non-existent to the fair range. He continues his good habits, and after a year, his score is in the good range. Rahul’s responsible credit use has not only helped him build a positive credit history but also instilled valuable financial discipline.

Remember, building credit is a marathon, not a sprint. By starting with a secured card, using it responsibly, and monitoring your progress, you’ll be well on your way to a strong credit foundation that will serve you well in the future. To improve your credit score, stay consistent, pay on time, and keep your credit utilisation in check.

Final Thoughts

Building credit from scratch with a credit card is an achievable goal with the right strategy and habits. By understanding how credit works, choosing the right card, and using it responsibly, you can establish a positive credit history that will open doors for you in the future.

Remember, Airtel Finance offers a range of credit card options and tools like free credit score checks to help you on your credit-building journey. Download the Airtel Thanks app today to get started and explore the best credit card for beginners. By leveraging the right tools and following key tips for your first credit card, you can set yourself up for success in building a strong credit profile.

FAQs

1. How long does it take to build credit with a credit card?

Building credit takes time and consistency. Expect to see a noticeable improvement in your credit score after 6-12 months of responsible credit card use.

2. Can I get a credit card with no credit history?

Yes, secured credit cards and student credit cards are designed for people with little to no credit history. These cards can help you build credit from scratch.

3. What is a good credit score?

Credit scores range from 300-900, with 750 and above considered excellent. A score of 700-749 is considered good, while 650-699 is fair.

4. How much should I spend on my credit card to build credit?

To build credit effectively, use your card regularly for small purchases you can easily pay off each month. Keep your credit utilisation below 30% of your limit.

5. What happens if I miss a credit card payment?

Missing payments can negatively impact your credit score and lead to late fees. Set up automatic payments or reminders to ensure you always pay on time.