How to Use a Credit Card to Build Credit

When it comes to accessing loans, getting competitive interest rates or even renting an apartment, building your credit history and having a strong credit score can help prove to lenders that you’re a responsible borrower.

If you’re looking to strengthen your credit score, you’re not alone — nearly 3 in 4 Canadians (73%) are interested in improving their credit score, according to NerdWallet’s 2024 Canadian Consumer Credit Card report.

While any loan you take out and make payments on — from a car loan to your line of credit — impacts your credit history, using a credit card responsibly can be one of the most accessible and efficient ways to elevate your credit score or start building credit as a newcomer or young borrower.

“Credit cards are one of the easiest ways in which people can either build new credit or repair credit,” says Amanda Martin, partnership and education specialist with the Credit Counselling Society in Hamilton, Ontario. “You just have to be aware and be mindful, not only of the terms and conditions associated with the card but in knowing yourself and your own spending behaviours.”

How do credit cards work?

When you make a purchase with a debit card or a prepaid card, the money you’re using is already in your account. But when you use a credit card, you borrow money from your card issuer with the promise to repay the funds to the lender within a specific timeframe.

Why does credit card usage contribute to credit history?

The way you use a credit card is a window into your financial responsibility. Over time, as you make purchases with your card and pay (or don’t pay) your balance, this activity is reported to the credit bureaus and shows lenders and others your ability to handle credit.

Tips for using a credit card to build credit

Understanding credit card best practices can help build your credit history and strengthen your credit score.

Use credit cards responsibly

The best way to show you’re a responsible borrower (and bolster your credit score) is to use your credit card regularly and pay off your full balance by the due date each month.

Making only minimum payments can elevate your credit utilization ratio — the amount of available credit you’re using — which may negatively affect your credit score. Aim to use less than 30% of your available credit to keep your credit utilization ratio low.

As Martin explains, you also don’t have to go into debt to show responsible credit card use — even making small purchases with a low-limit credit card each month can have a positive impact on your credit score, as long as you pay the bill in full when it comes in.

Choose the right card

Part of using a credit card to build credit is making sure your spending needs and your card are a practical match. There are many types of credit cards on the market, including:

Secured. Secured credit cards may be easier to qualify for when you’re building credit, as they are backed by a security deposit, which determines your credit limit. You make purchases and pay the balance as you would with any credit card, which helps build your credit, but the cash you put down when you opened the account acts as collateral, in case you can’t pay your bill.
Unsecured. Unsecured credit cards may offer benefits that their secured counterparts don’t, like rewards, cash back, travel insurance, no annual fees or low interest rates. You may need a good credit score, typically 660 and above, to qualify for some unsecured credit cards.
Student. If you’re in school, student cards may offer advantages like low or no annual fees and no minimum annual income requirements.
Newcomer. Some financial institutions offer credit cards for permanent residents or foreign workers who’ve been in Canada for less than five years, with no Canadian credit history required.

Understand credit card terms and conditions

You can set yourself up to be a responsible borrower by reviewing the terms and conditions associated with your card, including your credit limit, interest rate, fees, any promotional offers, your billing cycle, grace period, due date and your minimum payment.

How can I check my credit score?

Once you’ve started working on building your credit history and fortifying your credit score, there are a few ways you can monitor your efforts.

You can request a free copy of your credit report from Canada’s two major credit reporting agencies, Equifax or TransUnion, by phone, by mail, online or in person. Both Equifax and TransUnion also offer paid subscription services that provide daily access to credit scores and other features.