Approximately 77 percent of US adults have at least one credit card.

While most Americans have at least one credit card, not all have good credit scores. While 67 percent have a “good” credit score (at least 670), only 21.8 percent have an “exceptional” credit score (800 or higher).

Did you know you can use your credit card to improve your credit score? If you didn’t, this article is for you.

We’ll discuss five ways you can increase your credit standing by using your credit card strategically and effectively.

1. Always Pay On Time And In Full

Consistently paying your credit card bills on time and in full is the most important thing you can do if you want an exceptional credit score.

Always Pay On Time And In Full

Why? Because your payment history constitutes 35 percent of your Fair Isaac Corporation (FICO) Score. The top US financial institutions and lenders use your FICO Score to assess your creditworthiness.

Delayed payments can appear on your credit report for a maximum of seven years, negatively impacting your credit score.

You must practice discipline and avoid late payments as much as possible to maintain a good credit standing. 

Improving your credit score isn’t the only benefit of paying on time and in full. You also avoid paying hefty interest fees that can strain your wallet.

The average interest rate for late payments is around 1 to 2 percent. Depending on your expenses and your frequency of late payments, a 1 to 2 percent rate can amount to thousands of dollars in unnecessary interest payments yearly.

2. Lower Your Credit Utilization

The next most important thing you can do to boost your FICO Score is to reduce your credit utilization, which is 30 percent of your score.

Your credit utilization is the amount of available credit you use at a given time. If you have a credit limit of $10,000 and an unpaid charge of $1,500 on your card, your credit utilization is 15 percent. A 15 percent credit utilization is healthy, so don’t worry.

To increase your credit score, do your best to maintain at least a 30% credit utilization rate. However, a lower rate is much better. This rate signifies to lenders that you can pay your credit card bills on time and in full.

3. Increase Your Credit Limit

Another effective way to improve your credit standing is to ask for a credit limit increase, which can help lower your credit utilization.

Your utilization automatically decreases if your balance stays the same while your credit limit increases. 

In the example above, you have a $10,000 limit and an unpaid charge of $1,500, equating to a credit utilization of 15 percent.

If you increase your credit limit to $15,000, the charge of $1,500 would only result in a 10 percent credit utilization.

However, remember that it’s not always possible to request an increase in your credit limit, especially if you’re a new cardholder.

You must demonstrate an excellent track record of on-time payments and responsible credit card usage for your provider to grant you a credit limit increase.

4. Apply For New Credit Cards With Caution

If you already have one credit card, you may wonder if you should apply for a second one. Do not take this decision lightly.

Apply For New Credit Cards

The length of your credit history is 15 percent of your FICO score and includes the average age of your accounts. This age decreases every time you open a new credit card account.

Every new credit card application also generates a “hard inquiry,” which is a standard aspect of the application process.

A hard inquiry is a credit check that lenders or credit card companies perform to assess your creditworthiness. They pull your entire credit report to review your credit history.

Each hard inquiry can result in your credit score taking a hit of 5 to 10 points. Furthermore, credit card companies see several hard inquiries in a short period as a red flag because it indicates that you may have poor financial management skills.

5. Use Your Credit Card Regularly

We’ve already mentioned that lowering your credit utilization is an effective way of increasing your FICO score.

The question is: How do you use your credit card regularly while keeping utilization to a minimum?

The best way is to make small purchases with your credit card regularly. You can apply to a credit card certain transactions you know you can always pay on time and in full.

Examples of small charges include a weekly iced coffee from your local coffee shop or a monthly recurring payment to your favorite streaming service.

Improving your credit score means balancing low utilization with regular activity. When you make small transactions regularly and always pay them on time, you achieve two goals: 1) you build a strong history of on-time payments, and 2) you maintain low credit utilization.

Start Boosting Your Credit

You just learned five of the most effective ways to build your credit score and show excellent creditworthiness. However, remember that building excellent credit takes time.

Even if you practiced all the methods in this article, you won’t see your credit score improve immediately. Depending on your current credit standing, it may take months or even years to improve your FICO score.