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How to build good credit history with a credit card

Want to build good credit history and improve your credit score? Read this guide to find out how a credit card can help.

Credit history is a major factor to consider when applying for different types of loans and accounts. While good credit history can help you get a credit card, car loan or mortgage, limited or bad credit history makes it a lot harder to get the financial products you want or need.

This relationship between credit history and your finances makes it important to consider your credit history and credit score as soon as possible – and credit cards are a smart place to start. This guide looks at exactly how you can use a credit card to build good credit history at any stage of life.

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How do credit cards affect your credit history?

Your credit report includes details of a wide range of financial products you inquire about or use over the course of your life. The first listings on your credit file usually include phone plans and/or gas and electricity accounts, which do very little to show lenders whether or not you can handle a loan.

Credit cards are a valuable tool for building credit history because they add key details to your credit report that won’t be available if you only have utility accounts, including:

  • 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 key insights into your ability to manage a line of credit.
  • Loan inquiries. Applications for credit cards and other loans are considered “new loan inquiries”, which are also listed on your credit report. Loan inquiry details are important to lenders when assessing your applications for risk factors. The risks are increased for lenders if there are no previous applications or if there are a lot of applications in a short period of time, but it is still good to have some considered listings here if you want to apply for other products in the future.
  • Credit limit. When you get a credit card, your credit limit is also listed on your credit file. These details help lenders see how much access you have to credit when considering applications for loans and other products.
  • Monthly repayment history. Details of when you pay off your credit card, and whether you pay the minimum or full amount each month, give lenders an idea of your financial management skills.

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 file.

How can I use a credit card to improve my credit history?

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

  1. Only apply for one card at a time. Having too many credit card applications can hurt your credit rating, so make sure you compare credit cards and then apply for the one that best suits your needs at the time.
  2. 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 even be able to set up automatic payments from a nominated bank account.
  3. Pay more than the minimum. Carrying a balance on your credit card from month to month can increase the risk of serious debt, while paying more than the minimum required helps keep your account in good standing. Over time, this positive credit habit could also be reflected in your credit history and help you get approval for future loan products.
  4. Increase your credit limit. If you get a pay raise at work or your circumstances improve in some other way, requesting a higher limit for your credit card can show that you are able to manage a greater amount of credit. As long as you keep the account in good standing, this higher limit should help improve your credit score.
  5. Upgrade your account. If you have had a basic credit card for years, upgrading to a gold, platinum or black credit card could help show that you are able to manage a more premium credit account.
  6. Regularly review your credit card details. Taking time to go over your account details can help you see how well you are managing your credit card. It will also help you decide whether or not you want to increase your credit limit, upgrade the account or even apply for another credit card to show you are able to manage different levels of credit.

What kind of credit card will help my credit history?

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 to determine where your finances stand 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.

If your credit score isn't low but still needs improving, you can use a credit card to demonstrate positive signs to future lenders. This could include regular repayments, healthy credit limits and successful card applications. If you're considering a credit card to boost your credit score, you can start comparing your options below. Underneath the comparison table, we've also broken down the types of credit cards might suit you if you have a limited or bad credit history.

Rates last updated December 11th, 2018
Name Product Purchase rate (p.a.) Balance transfer rate (p.a.) Annual fee Product Description
Westpac Low Rate Card
13.49% p.a.
0% p.a. for 24 months with 1% balance transfer fee
$0 p.a. annual fee for the first year ($59 p.a. thereafter)
Offers a 0% for 24 month balance transfer option, first year annual fee waiver and a competitive purchase rate.
ANZ Low Rate
12.49% p.a.
0% p.a. for 15 months
$58 p.a.
Save with a 0% p.a. introductory rate on balance transfers for 15 months with no BT fee. Plus a low 12.49% p.a. interest rate on purchases.
ANZ First Visa Credit Card
19.74% p.a.
0% p.a. for 18 months with 2% balance transfer fee
$30 p.a.
Get up to 18 months interest-free on balance transfers and save with a low $30 annual fee. Plus, up to 44 days interest-free on purchases.
Virgin No Annual Fee Credit Card
18.99% p.a.
6.9% p.a. for 36 months
$0 p.a.
Offers a balance transfer rate of 6.9% p.a. interest for 36 months and up to 44 days interest-free on purchases, all for a $0 annual fee.
Skye Mastercard
23.99% p.a.
$0 p.a. annual fee for the first year ($99 p.a. thereafter)
Get 90 days interest-free, $0 foreign transaction fees and a $0 annual fee for the first year.

Compare up to 4 providers

If you have limited or no credit history

Limited credit history can make it harder to get approval for certain kinds of credit cards, so it’s a good idea to start by looking at basic credit cards. The ANZ First Visa, for example, is designed specifically for people who have never had a credit card before and has features and eligibility requirements that reflect that.

As the credit card provider won’t be able to use much of your credit history to assess your application eligibility, more weight will be placed on other factors, such as your income. With that in mind, a low-income credit card could be a good place to start even if you earn more than the minimum amount required.

You may also want to consider cards that are designed for students or other “no frills” options, such as the ME frank credit card. These types of cards are designed to be easy to apply for and manage, which means you can start building up your positive credit history.

If you have a bad credit score

Credit card providers will carefully consider any “bad credit” details – such as late payments or defaults – that are listed on your credit report. So, if you want to apply for a credit card to help improve your credit rating, sticking to basic options can improve your chances of getting approval.

Another option is to consider credit cards with no annual fee or a low standard interest rate. These kinds of cards can help keep the cost of the account down and make it easier for you to avoid late payments, defaults and other problems that lead to bad credit.

How to apply for a credit card to build your credit history

Follow these steps to get a credit card that you can use to improve your credit history.

  1. Compare cards. Search and compare a range of credit cards that suit your circumstances, paying particular attention to the eligibility criteria and ongoing features.
  2. Apply. Once you have chosen a credit card that fits your circumstances, just hit the “Go to site” button and you’ll be taken to a secure application page.
  3. Provide your personal information. Make sure you include as much information as possible in your application to increase the chances of approval, and keep supporting documentation handy.
  4. Submit the application. You should get a response within a few minutes, either on the webpage or via email.

If your application is successful, the provider will be in touch to finalise the process and issue your credit card. From there, you can start using it to improve your credit file.

With a wide range of options to choose from, a simple application process and convenient everyday spending options, credit cards are often a gateway to better credit history and more future loans. So, whether you are just starting your financial journey or need to improve on the past, with this information in mind you can use a credit card to meet your financial goals.

Picture: Shutterstock

Amy Bradney-George

Amy is a senior writer at finder.com.au with more than 10 years experience covering credit cards, personal finance and various lifestyle topics. When she’s not sharing her knowledge on money matters, Amy spends her time as an actress.

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2 Responses

  1. Default Gravatar
    March 28, 2018

    I am surprised that I have a credit rating of about 730 when I OWN my own home plus a rental, have 2 credit cards that are paid in full each month and have NEVER been in arrears and have no other loans. All my utility bills and any other bills are paid on time, once again never in arrears. Plus I have a substantial bank balance. I would have thought I would have had the top rating, so why not?

    • finder Customer Care
      LouMarch 28, 2018Staff

      Hi Marian,

      Thanks for your question.

      There are several possibilities why your credit score is low despite having a good credit track record. One is that there may be listings in your file that are erroneous and need to be removed. You can confirm this by checking your credit report. You may request a free copy through this page.

      If you see any erroneous entry in your file, kindly contact the credit scoring bureau and request to have that error corrected.

      I hope this helps.

      Cheers,
      Anndy

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