How a Credit Card Affects Your Credit Score

By Angela Monroe - July 18, 2019

A credit card is a basic tool for credit-building. It helps you establish a credit history, especially if you don’t have one yet. A good credit score can help you get future financing and qualify for better loan rates and terms. 

Many financial experts recommend the initial use of a credit card around your college years or shortly after graduation. The best time to get a one, however, is when you are can afford to pay the charges on your own and handle your credit responsibly. This means you should not spend more than 30% of your credit limit and paying your monthly bills on time.

Credit Card and Credit Score

Like everyone else, you start with no credit score. Once you get a credit card, it would usually take around 6 months for your bank to report your information to the credit bureaus. Your credit history is finally established once this is done. 

Meanwhile, your first credit score would depend on your initial purchasing activities. It could range anywhere from lower than 500 to well above 600 if you manage your card payments wisely. The age of your credit is also factored in when calculating your credit score. Since your credit line is new, your overall credit score may be still low.

Secured Credit Card

A secured credit card is typically the easiest one to get if you don’t have a credit history yet. It requires a security deposit, which acts as collateral to protect the issuer from payment delinquencies and eventual charge-off.

Your card issuer determines the amount of the security deposit you need to provide. It is usually the equivalent to your credit limit. It often starts around $200, but some can be as high as $2,000 or more. After several months or years of responsible use, you can get your security deposit back when you decide to close your secured credit card line or upgrade to an unsecured line.


Aside from the security deposit, a secured credit card functions in the same way as a regular or unsecured. Nearly all of the leading credit card lenders issue a secured credit account. It can be used anywhere the card brand is accepted. It can also be eligible for perks and rewards and can also carry an annual fee, as well as initial setup fees or activation fees, credit increase fees, monthly maintenance fees, and balance inquiry fees.

A secured credit card also sends monthly statements of your end-of-period balances and the activities on the card during the specific month. You can choose to pay at least the minimum due and the interest on outstanding balances. 

Generally, it has a lower credit limit and more fees than an unsecured one. It is also not meant to be used forever. Its main purpose is to build your credit enough to qualify for an unsecured card, which does not require a deposit and offers better benefits. 

Should you decide to get one, get the one with the lowest annual fee. Make sure also that the card issuer reports to the national credit bureaus. 

Alternatives to Secured Credit Card

If you can’t get the approval of any credit card issuer, you can still get a credit account by getting a co-signer and becoming an authorized user on someone else’s credit card.

Getting a Credit Card Co-Signer

Applying with a co-signer helps you qualify for a credit card if you have an insufficient credit history or bad credit. This makes the co-signer equally responsible for the credit card use, as well as for the repayment of any charges and credit balances. 

Your co-signer needs to have a good credit profile to win the approval of the credit card issuer. He or she will vouch for your creditworthiness. If you can’t make the repayments on your credit card bills, they need to shoulder the responsibility. Any delinquent payments and charge-off will affect their credit profile and cause their credit score to drop.

Because of this, finding a co-signer can be tough. Those who volunteer to co-sign with you are most likely your parents or any close family member or friend. Also, there only a handful of credit card issuers that allow co-signers on credit card applications. 

Becoming an Authorized Credit Card User

Becoming an authorised user on someone else’s credit line not only allows you to use the card, but it also helps build your credit history with the three credit reporting agencies. Like having a co-signer, your credit card activities affect the primary account holder. The primary cardholder is also responsible for the repayment of whatever you charge on the card.

If you charge more than you can afford and don’t pay it back, the primary cardholder will shoulder the burden of payments. Thus, you need to use the card responsibly in order to protect the good credit profile of both you and the primary account holder. 

Building Your Credit Score Using Your Credit Card

Regardless of what credit card you own or are authorised to use, it is important to use it responsibly. It is like a double-edged sword. It can help build your good credit profile, but it can also create a bad credit profile for you if not used wisely.

To build a good credit score with your credit card:

  1. Use it to purchase products and pay for service regularly, but keep your spending to around 30% of the credit limit. Credit utilisation is factored in when calculating your credit score. Keep your credit utilisation low to boost your credit score.
  2. Pay your monthly bills on time. This is not only limited to your credit account but also to your utility bills. Some bills that are left unpaid can be sold to a collection agency. This will greatly damage your credit profile.
  3. Make sure to pay more than the minimum monthly payment and avoid carrying large balances. 
  4. Do not miss payments. If you need to be constantly reminded of your monthly payment responsibility, configure the email and text alerts. This will notify you when your statement is available and when your payment is due. 
  5. Do not close your account. Unless you want to upgrade from secured to an unsecured one. Or you have other compelling reasons to close your credit line, keep it open. Your credit age affects credit scoring algorithms. The longer your credit line has been opened, the better your credit score will be.

Other Ways to Build Your Credit Score

Credit-Builder Loan

This financing is designed to build your credit and not to help you get funds for personal or business projects. It requires you to borrow money and make monthly payments, which will be reported to the credit bureaus. However, you will not get the money. Instead, the lender keeps it in the bank and will only hand over to once your full loan is repaid. 

You can get a credit-builder loan from credit unions or community banks.

Bad Credit Loan

A bad credit loan is designed for people with bad credit, insufficient credit history, or no credit record at all. 

Typically, the interest rate for this type of financing is slightly higher than standard loans. Some lenders also require a large down payment and collateral. All these requirements compensate for your high risk of defaulting on the loan since you can’t prove your creditworthiness. 

Before getting one, shop around for good deals. Stay away from bad credit loan providers that charge too high-interest rates and set unfavourable loan terms. If you can’t make the monthly repayments, you’d be stuck in debt with a damaged credit profile that could take years to fix.


Loans for People With Bad Credit help Australians with bad credit get loans with reasonable rates and terms. Call us on 1300 769 384 or request a Bad Credit Loan Pre-Approval. We will not run a credit check until we have spoken with you.


See also:

5 Habits that Ruin Your Credit Score

How to Fix Your Bad Credit Report

What Are My Options If I Have An Insufficient Credit History?

Angela Monroe
Angela Monroe is the Community Manager at The Positive Group, specialising in giving people the information that they need when they need it, and putting you on the path to a fair financial future. She has 8 years of experience in helping Australians find the right finance solutions, and regularly contributes articles to empower Australians with the knowledge they need to become financially healthy.


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