Do Gas Credit Cards Build Credit?
If you have a poor or limited credit score, you may already know that using a credit card responsibly is one of the fastest ways to improve your situation. But if your score is low, it may be hard for you to qualify for a traditional credit card.
In this case, a gas credit card may be a good alternative for you. Often, credit cards from a gas company, like retail credit cards, have more relaxed requirements for approval.
Before applying for any credit card, make sure the card issuer will report information to the three credit bureaus. Otherwise, your responsible use and timely payments will go unrecorded, so your credit score will not improve. Fortunately, most credit cards from gas companies do report information to the credit bureaus, so these cards can help build or rebuild your credit.
Why are gas credit cards a good option?
Not only are credit cards from gas companies easier to obtain, there are a number of other benefits to using them to improve your credit.
First of all, you can usually only these credit cards from gas companies to buy fuel, which is presumably a purchase you are already making. Since gas purchases are already in your budget, you will not be spending money on frivolous purchases. If you have a history of over-spending on credit cards and carrying balances every month, gas credit cards will only allow you to spend money on purchases you need and have budgeted.
Secondly, if you use the card to only purchase gas and pay the balance each month, you will likely have low credit utilization. The second most important aspect of your credit score is credit utilization, or your debt-to-available-credit ratio. To maximize your credit score, you want to use no more than 30% of your available credit. You will likely have a low credit limit on your gas credit card. But you should not be carrying a high balance since you are only making fuel purchases, which means you will show good credit utilization.
Next, if you make small purchases on your gas credit card each month and make payments on time, you will be building a positive payment history, which is the most important part of your credit score. After six months of on-time payments, you should begin to see your credit score rise.
Finally, many gas credit cards offer fuel discounts and rewards, which means you can save money on your gas purchases.
Are there any downsides?
There are a few downsides to using credit cards from a gas company. First, if you apply for a card linked to a specific fueling station, you can only use that card at a specific gas station, which obviously limits the use.
The biggest drawback to gas credit cards is that they usually carry a higher interest rate than other credit cards—sometimes as high as 26.49%. If you carry a balance from month-to-month, you will face extremely high interest charges. However, if you pay your balance in full every month, gas credit cards can help build a positive payment history so your credit score begins to improve.