What's the deal with the credit card craze? They often offer rewards, have stronger fraud liability protections than debit cards and allow you to pay off large balances over time. But did you know that you can use credit cards to help build your credit? It's true. Credit cards can also help establish and build your credit. Learn more about how you can use credit cards to build your credit.
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Many Americans instinctively pull out a credit card to buy a $1 candy bar the same way that they would a $1,000 computer. And according to a 2019 Consumer Financial Protection Bureau (CFPB) report, nearly 170 million Americans (about 72% of adults) have at least one credit card—and many own more than one.
Why the craze for credit cards in the U.S.? They often offer rewards, have stronger fraud liability protections than debit cards and allow you to pay off large balances over time. Credit cards can also play an important role in helping you establish and build your credit.
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The U.S. credit system - How to use credit cards to build credit
Credit works differently in the U.S. than in many parts of the world, and a basic understanding of the system can help you start building your credit score.
In short, here’s how it works:
Credit card issuers, banks, credit unions and other financial institutions can choose to send information to the three major credit bureaus—Experian, Equifax and TransUnion. The bureaus also actively collect data such as bankruptcy records from public court systems.
Credit bureaus create credit reports by matching the information in their database with personal identifiers such as your name and address. A Social Security number (SSN) can be one of these identifiers, but you don't need an SSN to build credit.
Credit scoring companies, namely FICO® and VantageScore®, create computer models that analyze a credit report and create a credit score. Creditors use these scores to quickly understand how risky lending money to the person could be. Many credit scores range from 300 to 850, and a higher credit score indicates to lenders that a person is less likely to miss a payment. On-time payments, a long credit history of different types of accounts, low credit card balances and a having a mix of credit cards can help build your credit, but missing payments and high credit card balances can hurt your scores.
When a company checks your credit, they’re requesting a copy of your credit report, and often a score based on that report, from one of the credit bureaus. If the bureau doesn’t have any information about you in its database, it can’t return a report a score. Some creditors won’t let you open a new account, or won’t offer you favorable terms if they can’t see that you have good credit.
A credit card can help you build credit because most major credit bureaus report your account and activity to all three credit bureaus. (Some smaller card issuers only send information to one or two bureaus, or may choose not to report your account at all.)
You also don’t need to use your credit card all the time to build good credit. For example, you could use your card for one small monthly purchase (such as a subscription) and then set up automatic monthly payments to pay off the balance. Your on-time payment history will show responsible use of your credit card, and your creditworthiness may over time improve as a result.
For people who move to the U.S. from countries that don’t have a similarly vast credit system, the importance of credit in the U.S. may come as a surprise. Even if you never take out a loan or open a credit card, having good credit can make life easier and save you money.
Why is credit so important in the U.S.?
Credit goes beyond borrowing and can impact many aspects of your life in the U.S.
In many states, your credit history can impact your auto and renters or homeowners insurance rates. Having good credit could lower your bills and help save you money.
Some employers check your credit history as part of their job application and review process. A poor credit history may prevent you from getting a new job, or keep you from moving up in your current company or field, so building credit is crucial.
Landlords may also review your credit history and score before agreeing to rent you an apartment or home. If you have bad credit, you may have to pay a higher security deposit. Or, you might not get approved at all.
Mobile phone, internet and utility providers sometimes require new customers to send a security deposit if they don’t have good credit.
If you might borrow money in the future, having excellent credit can help you qualify for the best loan terms and lowest interest rates. Building credit is also important if you want access to the best credit card offers and higher credit lines, as those cards tend to have stricter minimum credit requirements.
Get a credit card to build credit with your international credit history
Through a partnership between Nova and American Express, U.S. newcomers from Australia, Canada, India, Mexico, UK, Brazil, Dominican Republic, Kenya and Nigeria can also use their credit history from their home country to apply for a U.S. Amex card (here’s a guide on how to do it). That can make it one of the best credit cards to help build credit since American Express will report your card account and activity to the credit bureaus, allowing you to use your previous credit card usage to help build credit in the U.S.
There are many Amex cards to choose from, including:
Blue Cash Everyday® Card from American Express:
No annual fee.
Earn a $200 statement credit after you spend $2,000 in purchases on your new Card within the first 6 months.
Buy Now, Pay Later: Enjoy $0 intro plan fees when you use Plan It® to split up large purchases into monthly installments. Pay $0 plan fees on plans created during the first 15 months after account opening. Plans created after that will have a plan fee up to 1.33% of each purchase amount moved into a plan based on the plan duration, the APR that would otherwise apply to the purchase, and other factors.
Low intro APR: 0% for 15 months on purchases from the date of account opening, then a variable rate, 14.74% to 24.74%
Earn 3% cash back at U.S. supermarkets (on up to $6,000 in purchase each year, then 1%), 2% cash back at U.S. gas stations, and 1% cash back everywhere else. Cash back is received in the form of Reward Dollars that can be easily redeemed for statement credits.
Platinum Card® from American Express:
$695 annual fee, terms apply.
Earn 100,000 Membership Rewards® points after you spend $6,000 on purchases on your new Card in your first 6 months of Card Membership.
Earn 5X Membership Rewards® Points for flights booked directly with airlines or with American Express Travel up to $500,000 on these purchases per calendar year and earn 5X Membership Rewards® Points on prepaid hotels booked with American Express Travel.
Get a $200 Hotel Credit: Get $200 back in statement credits each year on prepaid Fine Hotels + Resorts® or The Hotel Collection bookings, which requires a minimum two-night stay, with American Express Travel when you pay with your Platinum Card®.
Get a $240 Digital Entertainment Credit: Get up to $20 in statement credits each month when you pay for eligible purchases with the Platinum Card® at your choice of one or more of the following providers: Peacock, Audible, SiriusXM, and The New York Times. Enrollment required.
Get a $155 Walmart+ Credit: Cover the cost of a $12.95 monthly Walmart+ membership with a statement credit after you pay for Walmart+ each month with your Platinum Card. Cost includes $12.95 plus applicable local sales tax.
Get a $200 Airline Fee Credit: Get up to $200 in statement credits per calendar year in baggage fees and more at one select qualifying airline.
Get a $200 Uber Cash: Enjoy Uber VIP status and up to $200 in Uber savings on rides or eats orders in the US annually. Uber Cash and Uber VIP status is available to Basic Card Member only.
Get a $300 Equinox Credit: Get up to $25 back each month on the Equinox+ digital fitness app, or eligible Equinox club memberships when you pay with your Platinum Card®. Enrollment required.
American Express has expanded The Centurion® Network to include 40+ Centurion Lounge and Studio locations worldwide.
Blue Cash Preferred® Card from American Express:
$0 introductory annual fee for one year, then $95.
Earn a $300 statement credit after you spend $3,000 in purchases on your new Card within the first 6 months.
Buy Now, Pay Later: Enjoy $0 intro plan fees when you use Plan It® to split up large purchases into monthly installments. Pay $0 plan fees on plans created during the first 12 months after account opening. Plans created after that will have a plan fee up to 1.33% of each purchase amount moved into a plan based on the plan duration, the APR that would otherwise apply to the purchase, and other factors.
Low intro APR: 0% for 12 months on purchases from the date of account opening, then a variable rate, 14.74% to 24.74%
Earn 6% cash back at U.S. supermarkets on up to $6,000 per year in purchases (then 1%) and 6% cash back on select U.S. streaming subscriptions.
Earn 3% cash back on transit (including taxis / ride share, parking, tolls, trains, buses and more) as well as at at U.S. gas stations.
Earn 1% cash back on other purchases. All cash back is earned in the form reward dollars that can be redeemed for statement credits.
As a major issuer, American Express offers online access to your account and has a mobile app you can use to manage your account. You can also receive access to a free credit score and report, which you can use to monitor your credit building progress.
Get a credit card to establish credit history in the U.S.
Many people born in the U.S. start building credit when they take out a student loan, open a student credit card or become an authorized user (a type of second cardholder) on a parent’s credit card account. Alternatively, the secured credit card is another popular option to help build credit.
Secured cards are designed for people who are new to credit, or who made mistakes in the past and want to repair and build back their credit. To open a secured card, you’ll send the card issuer a refundable security deposit, which will usually determine your card’s credit limit (i.e., your total available credit before your card starts getting declined). The issuer can keep the deposit and close the account if the cardholder falls too far behind on payments.
With responsible credit card use, cardholders can improve their credit and eventually build their credit to a point where they qualify for unsecured credit cards (which don’t require a deposit). They can then close the secured card and get their refundable deposit back, or some card issuers will proactively upgrade accounts and refund deposits.
Because secured cards are generally offered to people with no, poor or fair credit, they can sometimes have annual fees, high interest rates and lack cardholder benefits, which can make them a poor decision if you're looking for the best credit cards to build credit fast.
Fortunately, there are good credit cards to build credit for people who don’t already have a U.S. credit history. For example, Discover® and Capital One® offer secured cards that don’t have an annual fee and allow you to make additional deposits to increase your credit line.
There are also a few unsecured cards that offer cash back rewards, no annual fees and don’t require a credit history. Here are two examples, with a quick overview of the card details:
Deserve® Classic: Another unsecured credit card to help build credit that doesn’t require a credit check and has no annual fee or foreign transaction fee. The card also offers extended warranties on eligible purchases and up to $600 in mobile phone insurance if you use the card to pay your phone bill. However, there’s no rewards program and Deserve only reports to TransUnion and Experian.
Choosing the right credit card to build credit history
There are many types of credit cards to build credit available, and the right card will depend on your circumstances, lifestyle and goals. If you’re looking for the best card to build your credit while minimizing your expenses, you may want to choose a rewards credit card that doesn’t have an annual fee and reports to all three credit bureaus. Or, if you’re interested in earning lots of rewards and getting extra cardholder perks, a card with an annual fee might be worth it.
Sometimes, card issuers waive the annual fee for the first year to let you try out a credit card while you build that credit history. But make sure you mark your calendar for the end of your first year so you can close or potentially downgrade to a no-fee card if you don’t feel like you got enough value.
No matter which card you choose, try to track your spending and only make purchases that you can afford to pay in full by the due date. Credit card debt often has a much higher interest rate than other forms of consumer loans, and it’s best to avoid interest charges when possible.
If you do wind up with a higher balance than you can afford to pay off, still make at least the minimum payment by the due date. Doing so will ensure you don’t wind up with a late payment on your credit report, which could hurt your credit scores.
To learn more about managing credit cards and building credit in the U.S., check out Nova’s many posts on the topic in our resources section.
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