Guide to Building Credit Score

As a frequent traveler, I’ve learned that the ultimate travel hack is a good credit card that helps in building credit. It allows me to go completely cashless, making trips through cities effortless.

Beyond convenience, it’s a powerful tool for earning rewards. Every time I spend on my needs and wants, I get rewarded with special perks and savings. It’s a win-win, and who doesn’t love a good freebie?

Of course, owning a credit card also teaches you a valuable lesson in discipline. It’s a mind game, for sure, but it’s one that helps you master your spending.

In this blog, I will show you the pros and cons of owning a credit card, and how you can build your credit score with or without a credit card. Building credit takes time. Banks need proof that you will be able to pay back what you borrowed from them in a certain period of time. Banks build trust in you through a cycle of borrowing and paying back what you owe them.

Many people are still reluctant about getting loans or credit cards.  Let’s be honest, talking about money—especially credit cards and loans—can feel a little intimidating. For a long time, the narrative has been all about debt and financial problems. But what if we change that story? A credit card isn’t a debt trap; it’s a powerful tool for building the life and adventures you dream of. It can help you build your financial freedom and offer perks that are beneficial to you, if you use it strategically.

Before anything, let’s discuss first the pros and cons of getting a credit card.

A strong credit score is your secret superpower. It’s what allows you to secure your dream home, get a great rate on a car loan, and even make renting an apartment easier. It’s the foundation of your financial independence.

This is where the real fun begins! Think of your everyday spending—your morning coffee, that new pair of hiking boots, a weekend shopping spree—as a way to fund your next adventure:

Cash back: means that a certain percentage of your spending is given back to you. This is basically free money after spending, thus the term “cash back.” 

Points: You also earn points by spending with the credit card. Points are redeemable through gift cards, merchandizes, or statement credits.

Travel or miles points: This is a personal favorite for a reason! It’s how you can turn every swipe into a future vacation. Imagine using the miles from your grocery runs to snag a free flight to your next destination. Some cards even grant you complimentary access to airport lounges, so you can escape the crowds and enjoy a moment of peace with a glass of champagne before your flight. A true traveler’s dream!

When you’re abroad, a credit card is your best line of defense against financial fraud. If your card is compromised, you’re protected—the bank’s money is on the line, not yours. They will quickly resolve any unauthorized charges, giving you the peace of mind you need to enjoy your travels.

Credit cards are incredibly convenient, letting you go cashless while automatically tracking every expense in your bank application. You’ll never have to wonder where your money went!

Credit cards can also be a vital lifeline for emergencies. Imagine facing an unexpected bill in a foreign country; your credit card can provide the immediate funds you need, saving you from a frantic search for a money changer. It’s peace of mind in your wallet when you need it most.

Some credit cards come with purchase-related benefits which includes extended warranties for some eligible purchases, purchase protection which may include accidental damage or being stolen shortly after the purchase, and rental car insurance covering damages caused by collision or theft.

Beyond the points and miles, many credit cards offer a suite of benefits that make travel smoother and more secure. This can include free travel insurance for trip cancellation or baggage delays, extended warranties on your new camera or laptop, and even complimentary rental car insurance. And for international trips, look for cards with no foreign transaction fees—this small detail can save you from losing money on every single purchase abroad, leaving more for souvenirs and experiences!

Getting a credit card is like carrying a responsibility as well. Though it may be convenient, this also exposes you to several drawbacks.

If you don’t pay your full statement balance by the due date, the credit card company will charge you with interest on the remaining amount. This is one of the main reasons many people are afraid of credit cards—the interest rates are insanely high, ranging from 15% to 25%, and they compound. This means even a small balance can quickly grow into a huge debt if left unpaid. The good news is you can easily avoid this by regularly monitoring your balance and paying it in full every month before the due date.

I’ve personally known people who have fallen into the trap of swiping their life out of their credit cards who now have a huge amount of debt that will take them years to pay. Unlike cash or debit cards which will deduct the amount from your money, swiping credit cards can feel like you are not spending your own money which leads to impulse buying and overspending. It is important to have self control and discipline regarding spending and to stick to your budget.

This is connected to overspending. Credit cards allow you to borrow money over and over again which makes people fall into a cycle of debt. It is important to keep track of your credit card spendings and make sure to always pay in full before the due date to avoid high interests. Always making minimum payments will only feel like you’re not making progress paying off your credit card debt.

There are various fees incurred by owning a credit card, but these can be avoided. These include:

Annual fees – some cards with premium rewards charge an annual fee just for having the card. Some cards offer no annual fee for a lifetime while some can be waived. 

Late payment fees – aside from the interest rate, late payment fees can be incurred if you don’t pay your balance before the due date.

Cash advance fees – If you try to withdraw cash from your credit card, you can be charged with a high cash advance fee as well as interest that accrues instantly.

Foreign transaction fees – Some credit cards charge an extra fee of 3% for foreign purchases.

Balance transfer fees – This is a fee that is incurred when moving a debt from one card to another.

While a credit card can build your credit score, it can also destroy it, if you allow it too. Negative debt habits include missing a payment, carrying a high balance, and applying for too many cards at the same time. Missing a payment can lead to fees and interests which will add to your debt. Carrying a high balance can also show that you are being too reliant on credit itself which is not good when building trusts of banks. The secret is to keep your credit utilization up to 30% of your credit limit. Applying for too many cards can mean the same as carrying a high balance.

Making only minimum payments can lead to more interests and keep you in the debt loop. Paying for interest is painful because it is money that you were not able to utilize that goes to the bank for free, just because you missed the deadline. Some credit card issuers set up minimum payment just enough to cover interest and a small portion of the principal which can give you a false sense of security. 

Now that you know the pros and cons of getting a credit card, you can now decide whether or not to get one to build your credit score. Credit cards make it easier to build a good credit score but you can still build it without one.

1. Open a credit card account on your trusted bank or issuer. You may need to present documents depending on the bank’s requirement.
2. To increase your credit limit, pay your bills after you get your credit statement but before the due date. The credit card statement is the bank’s way of sending you a formal bill for all the money you borrowed during the past month. The credit card company reports these on-time payments to the credit bureaus, which helps you build a strong credit history and a high credit score.
3. Keep your credit utilization rate of up to 30% only of your available limit. Never max out your credit card. This shows that you are not highly dependent on your credit card as a means to live.
4. Request a credit increase after 6 months or a year. If you think that you have been a good credit card user, you can ask your bank to increase your credit limit every 6 months or 1 year. Do not hesitate to request for it! As they say, there are many good things in life that you can get if you know how to ask.

1. Become an authorized user. If you are not yet eligible for a credit card, you can ask for your relatives to sign you up as an authorized user. This can help build a credit score and train yourself in using a credit card.
2. Avail credit-builder loans – it is like borrowing from a bank but instead of getting the money up-front, the bank puts it in locked savings account. You pay it monthly for a certain duration and once done, you will get full access to the savings account
3. Get a secured loan. This needs you to put up a collateral or an asset that you own which the creditors can take if you were unable to pay the loan. Ensure that you are making on-time payments so that the lender can report this to the credit bureaus.
4. Report your rent and utility payments – third-party services or rent-reporting companies can track your on time rent and utilities payment. This turns your largest monthly expense into a credit-building asset. It demonstrates consistency and financial responsibility

So, are you ready to start building your credit? Comment down below if you have other suggestions or credit building hacks that you want to share to the world!

If you want to learn more tips on how to save money for travel, check out my other blogs on my website. Happy reading!