Last updated on November 28th, 2022
How To Build Credit With Everyday Purchases
Before we can get into what it takes to build credit with everyday purchases, there are some basics we must explain because building credit is all about the big picture first and fine details later. However, your everyday essential purchases can help grow your credit score through the responsible use of a credit card. But first, learn more about building credit and budgeting. Let’s get into it.
How Credit Building Works
Basic credit-building with a credit card starts with your usage or, better said, your credit utilization. A big part of maintaining excellent credit is keeping your balance low. The lower your balance, the better it looks to the credit bureaus because you’re not in large amounts of debt. So, use your credit card often but keep a low balance.
Related Article: Use These Credit Tips (and Credit Cards) to Quickly Build Your Credit Score
Next, and probably most importantly, pay your credit cards on time. Aim to pay off the balance statement in full each month to reflect responsible use of the card and to save yourself the cost of interest, late fees, or points off your credit score. If paying off the total monthly statement balance is unattainable, at the very least, pay the minimum amount.
Finally, once your credit improves, ask for a credit limit increase. After six months to a year, most credit cards will give you a credit increase if you have frequently used the credit card and made all your payments on time. An increased credit limit means you have higher purchasing power. It also means you gain a bit more wiggle room for whatever your estimated low balance budget is.
For example, if you’re trying to keep a low balance on a $500 credit limit, your low balance threshold should be at most $150 (30% of $500). If your credit limit increases to $1,000, your low balance threshold is $300 (30% of $1,000). Maintain a low balance on your credit card by using no more than 30% of your credit limit. Once your credit starts to improve, you’ll get better credit card offers with higher limits. But don’t get carried away and splurge just because you qualify for a higher credit line. Stay within your budget to assure responsible use of your credit card.
To summarize:
- Keep your balance low
- Pay on-time
- Pay off the total statement balance
- Increase your credit limit
If you don’t have a credit card, consider applying to credit cards that cater to subprime credit. There are many unsecured credit cards available to choose from. If those don’t work in your favor, you can opt for a secured credit card.
Related Article: The Best Secured Credit Cards for 2022
Don’t Forget To Budget
If you want to use everyday essential credit card purchases to increase your credit score, you must budget. There are many ways to budget. The point of budgeting is to get a better view of your finances to decide how to spend and save wisely. Make a quick budget by creating a list of all your expenses. Then calculate your total monthly income. Distribute your income accordingly between all your bills. The remainder should go towards savings and possibly some splurging.
When you budget, there is no mystery behind how much you can spend. It also gives a better understanding of how your finances are distributed throughout your bills and can help you create a successful plan to manage your money.
Build Credit With Everyday Essential Purchases
We have now gone through the basics of building credit with a credit card. Essentially, you should keep your statement balances low, make on-time monthly payments, aim to pay your statement balance in full, ask for a credit limit increase, and have a budget. Now, apply the credit-building tips to your everyday monthly purchases. Use your credit card for the essentials.
Utilities
Utilities are crucial to daily living and can include things like water, electricity, and gas. These essential services can typically get paid via credit card. So, why not use this recurring monthly bill to your advantage and build credit? If you have a budget set for utility bills, then using a credit card to pay them assures you can pay the statement balance in full every month.
You can also take it a step further and set up automatic payments. Make sure you do the math and keep your balance low. You don’t have to go overboard and charge all your utilities. But at the very least, use a credit card for the utility bill that makes more sense for your budget and your credit limit.
Rent
If you rent your home, there may be a shot at using a credit card to pay for it. However, not all landlords provide this option. If the option is available, there may be some credit card fees. The Bilt Mastercard, however, offers a workaround. With Bilt, cardholders earn points on rent with no transaction fee – all for no annual fee. With the Bilt Mastercard, even if your property only accepts checks, you can still pay with the credit card via the Bilt app, and Bilt will send a check on your behalf.
Groceries
Humans must eat, which is why groceries are essential for the daily grind. Consider the allotted budget you have in place for groceries and use your credit card to make the purchase. Using a credit card to buy the things you need (like groceries) versus the wants makes the card purchase easier to manage. Another benefit is earning rewards for your purchases. If you qualify for a rewards credit card, you can rack up points or cash back for most purchases, including grocery shopping.
Related Article: The Best Cash Back Credit Cards of 2022
Gas or Car Insurance
Getting around in a car means part of your budget must include gas and car insurance. Car insurance is a recurring monthly bill for most people, and adding it to a credit card can be the essential credit card purchase that builds your credit with responsible use, of course. Similarly, if you’re using a car for your daily commute, gas is a need. Luckily there are credit cards to reward cardholders for gas station purchases. You can find gas rewards credit cards here.
The Bottom Line
In conclusion, building credit is simple. It won’t be done overnight, but it can be done one small step at a time. You can start by applying for a credit-builder credit card, then budget yourself accordingly. Make sure to keep your credit card balances low and make on-time payments. A couple of other things you should do is use credit bureau applications to monitor your credit score and credit history. Keep a vigilant eye on your credit and make sure to dispute any point hits you don’t recognize on your credit.
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