How to improve your credit score with a credit card

While it might seem slightly counterintuitive, getting a credit card can actually help improve your credit score. One of the key factors credit bureaus use when calculating your credit score is your ability to pay off your existing credit and debts on time.

When you take out a credit card, you give yourself the opportunity to demonstrate that you are a responsible borrower, provided you use it correctly. Making your credit card repayments on time, paying more than the minimum payment, and correctly managing your credit limit can all have a positive impact on your credit history and help build your credit score.

Does having a credit card help my credit score?

No, getting a credit card will not automatically improve your credit score and can actually hurt it if you're judged to have taken out too much credit or applied for too many cards in a short space of time. However, being a responsible credit card user can help build your credit history and boost your credit score.

How to use a credit card to improve your credit score

Every time you apply for a credit card or use your card, there’s the potential that it will impact your credit history. You can use this to your advantage and build good credit in the following ways:

• Only apply for one card at a time. Having too many credit card applications can hurt your credit score, so make sure you compare credit cards and then apply for the one that best suits your needs at the time. If your application is accepted, don't apply for another card straight away. Instead, take some time to improve your credit history by demonstrating positive payment behaviours with other accounts.
• Make repayments on time. Paying off your credit card balance on or before the due date shows lenders you are responsible with your accounts. Depending on the credit card you choose, you could set up automatic payments from a nominated bank account.
• Pay more than the minimum. You're only required to pay the minimum payment on your credit card each month. This is usually only 2% or 3% of the amount owing, which leaves the rest to attract interest. If this grows into unmanageable debt, this could hurt your credit score. Instead, paying your account in full (or paying as much as you can) will reduce your interest costs and help keep your account in good standing. It also demonstrates positive credit habits on your report.
• Consolidate debts. If you already have one or multiple credit cards, you can transfer them to a balance transfer credit card that charges no interest for up to 26 months. Not only will you save without paying any interest, you can also potentially pay off your debts faster and potentially lower your combined credit limits.
• Manage your credit limit. If you're planning to apply for another credit card and already have a card with a high credit limit, you may want to consider lowering it. Multiple unsecured debts and high credit limits can hurt your credit score.

How do credit cards affect your credit history?

Your credit report includes details of a wide range of financial products you apply for or use over the course of your life. This includes credit cards, loans, mortgages and utility accounts such as phone plans and gas or electricity accounts. If you have a credit card, the following details will be included in your credit report:

• The type of account. Credit cards and loans are generally considered the most "valuable" types of accounts to have listed on your credit history because they give lenders an indication of your ability to manage and repay a line of credit.
• Loan inquiries. Applications for credit cards and loans are considered "new loan inquiries", which are also listed on your credit report. Several applications for credit in a short time period can hurt your credit score and be a red flag to lenders reviewing your history. However, credit enquiries spread out over time can demonstrate your ability to successfully apply for and manage credit products.
• Credit limit. When you get a credit card, your credit limit is also listed on your credit report. These details help lenders see how much access you have to credit when considering applications for loans and other products.
• Monthly repayment history. Your credit history lists if you pay your credit card on time and whether you pay the minimum or full amount each month. This information also gives lenders an idea of your ability to make timely repayments.

Keep in mind that these are just some of the details listed on your credit history. You can learn more about what else is included with our guide to understanding your credit report.

What's the best credit card to build my credit score in Australia?

Unlike other countries such as the US and UK, credit card providers in Australia don't really offer dedicated credit builder credit cards. Therefore, the best credit card to build your credit history is the one that you will get approved for, and which you can successfully pay off on time each month.

We've listed some of the best types of credit cards to use to build credit in Australia below.

What type of credit card will help my credit history?

If you're trying to build your credit history, there are a few different types of credit cards that may help you:

• Low interest rates. You should always aim to pay your balance in full to avoid paying interest. If you think there may be instances when you can't clear the balance, consider a card that charges a low interest rate. Compared to other cards, interest rates between 8.99% p.a. and 14.99% p.a. are considered low.
• Student or first credit cards. There are some products designed to suit people with limited credit card experience. For example, the ANZ First is a no frills card that is suited for first-time credit card applicants or people who want a basic credit card.
• Low credit limit. A credit card with a low maximum credit limit can help keep your spending in check.

Most Australian credit card issuers won't approve applicants who have a bad credit history. This is why it's important to order a copy of your credit report and score (which you can do for free through Finder) before you apply.

If you have a low credit score, you should spend some time improving it before you apply. Check out our guide to improving your credit score for some tips.

Compare credit cards with low interest rates

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Name	Purchase rate p.a.	Bonus points	Points per $ spent	Interest-free period	Balance transfer rate p.a.	Annual fee
Bankwest Breeze Classic Mastercard	Purchase rate p.a. 0% for 12 months, then 12.99%	Bonus points N/A	Points per $ spent N/A	Interest-free period Up to 55 days on purchases	Balance transfer rate p.a. 0% for 12 months with 2% balance transfer fee, then 12.99%	Annual fee $49	Go to siteMore Info Compare	Save with 0% p.a. on purchases and balance transfers for 12 months (with a 2% BT fee).
NAB Low Rate Credit Card	Purchase rate p.a. 12.49%	Bonus points N/A	Points per $ spent N/A	Interest-free period Up to 55 days on purchases	Balance transfer rate p.a. 0% for 28 months with 2% balance transfer fee, then 21.74%	Annual fee $0 first year ($59 after)	Go to siteMore Info Compare	Get a 0% p.a. interest rate on balance transfers for the first 28 months (with a 2% BT fee). Plus, save with a $0 first-year annual fee.
Westpac Low Rate Card	Purchase rate p.a. 13.74%	Bonus points N/A	Points per $ spent N/A	Interest-free period Up to 55 days on purchases	Balance transfer rate p.a. 0% for 28 months, then 21.49%	Annual fee $59	Go to siteMore Info Compare	Save with a 0% p.a. interest rate on balance transfers for 28 months. Plus, a low 13.74% p.a. purchase interest rate.
Bankwest Breeze Platinum Mastercard	Purchase rate p.a. 0% for 12 months, then 12.99%	Bonus points N/A	Points per $ spent N/A	Interest-free period Up to 55 days on purchases	Balance transfer rate p.a. 0% for 12 months with 2% balance transfer fee, then 12.99%	Annual fee $69	Go to siteMore Info Compare	Get 0% p.a. interest on purchases and balance transfers for 12 months (with a 2% BT fee). Plus 0% foreign fees and complimentary overseas travel insurance.
Westpac Low Rate Card - Cashback Offer	Purchase rate p.a. 13.74%	Bonus points N/A	Points per $ spent N/A	Interest-free period Up to 55 days on purchases	Balance transfer rate p.a.	Annual fee $59	Go to siteMore Info Compare	A no-frills card offering up to $350 cashback: $50 each month you make at least $1,000 of eligible purchases for the first 7 months.
St.George Vertigo Card - Cashback Offer	Purchase rate p.a. 13.99%	Bonus points N/A	Points per $ spent N/A	Interest-free period Up to 55 days on purchases	Balance transfer rate p.a. 6.99% for 12 months, then 21.49%	Annual fee $55	Go to siteMore Info Compare	Get up to $400 cashback at eligible supermarkets and petrol stations in the first 180 days. Plus, a low interest rate for purchases.
American Express Low Rate Credit Card	Purchase rate p.a. 10.99%	Bonus points N/A	Points per $ spent N/A	Interest-free period Up to 55 days on purchases	Balance transfer rate p.a.	Annual fee $0	Go to siteMore Info Compare	Offers a low ongoing interest rate of 10.99% p.a. and a $0 annual fee. Plus, complimentary purchase cover.
Citi Rewards Card - Purchase and Balance Transfer Offer Citi Rewards Program	Purchase rate p.a. 0% for 12 months, then 21.49%	Bonus points N/A	Points per $ spent 1	Interest-free period Up to 55 days on purchases	Balance transfer rate p.a. 0% for 12 months, then 22.24%	Annual fee $199	More Info Compare	Save with 0% p.a. on purchases and balance transfers for 12 months with no balance transfer fee.
Credit Union SA Education Community Credit Card	Purchase rate p.a. 0% for 6 months, then 11.49%	Bonus points N/A	Points per $ spent N/A	Interest-free period Up to 55 days on purchases	Balance transfer rate p.a. 0% for 6 months, then 11.49%	Annual fee $0	More Info Compare	Save with an ongoing $0 annual fee and 0% p.a. interest on purchases, balance transfers and cash advances.
NAB StraightUp Card	Purchase rate p.a. 0%	Bonus points N/A	Points per $ spent N/A	Interest-free period	Balance transfer rate p.a.	Annual fee $0	More Info Compare	Save with 0% p.a. interest charges and 0% foreign transaction fees. Plus, $0 monthly fees when you don't use the card or carry a balance.

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What is a good or bad credit score?

If you're wondering where your credit score sits on the scale and want a goal to work towards, you can look at the credit score bands issued by credit reporting agencies Experian and Equifax below.

If used responsibly, credit cards can be a useful tool to manage your finances and build a healthy credit history. It's important to spend properly, make timely repayments and pay off as much as your balance as possible each month. If you have a low credit score with negative listings on your report, spend some time improving your score before you apply for a credit card.