Editorial Policy

How a gas card can help build your credit score

Susan Johnston Taylor

July 9, 2015

Can't qualify for a major credit card? Retail cards, such as the ones offered by gas stations and other retailers, typically approve consumers with lower credit scores and report to the credit bureaus so that cardholders who pay as agreed can build a positive credit history.

Some gas credit cards may also give you a small discount per gallon of gas charged on the card, although these cards typically come with much higher interest rates than other cards.

Some are co-branded with a gas station company, such as Exxon or Citgo and a major card network, such as Visa or MasterCard, which can be used anywhere.

Additionally, some rewards cards issued by major card brands award extra rewards points for gas purchases, however, consumers with low or no credit may not qualify for a card with a major issuer.

Since gas is a necessity, a gas card might make more sense for someone building credit versus a department store card, which is often used for more discretionary purchases.

Follow these steps to build your credit using a gas credit card.

What's your score?

First, check your FICO score, the dominant scoring model, from either Equifax, Experian or TransUnion for about $20 at MyFICO.com. You will want to only apply for cards that fall into your range or below. You may want to contact the card issuer to ask what numerical score is required for a particular card before you apply. The range is 300 to 850, with 850 being the best.

If your score is not high enough to meet the minimum requirement to be approved for the card, check your credit reports at AnnualCreditReport.com for errors and ways to improve. Dispute any legitimate errors, wait until the dispute has been resolved, and check your score again.

If there are accurate late or unpaid notices on your reports, contact the creditor and arrange payments. If possible, pay the full amount, because if you settle a lesser amount, it can be reflected on your reports. Check your reports to ensure that your good behavior has been reflected.

Choose your card carefully

Multiple credit inquiries will ding your credit score, so apply for one card at a time. Before you apply, Natasha Bishop, Nashville division manager for credit counseling service Apprisen, suggests asking if the card issuer reports payments to the credit bureaus. “It's not required, but most of them report to all three credit bureaus,” she says. Also, check the interest rate and if there's an annual fee (most do not charge annual fees, but it's worth checking).

Also, choose a gas station brand that's convenient so you're not driving out of your way to use your card. “Think about which retail location makes the most sense for you so you can keep that card open for a long period of time,” says Kathryn Bossler, a financial counselor with the credit and debt counseling organization Green Path Debt Solutions.

“You want to leave that account open and let that credit history develop,” Bossler says. In fact, 15 percent of your FICO score is based on the length of your credit history, so it's a good idea to keep your gas card even as you add other cards to your wallet in the future.

Pay the balance in full

Paying your balance in full and on time each month will help you avoid paying interest and build a positive credit history. “Interest is generally high on those cards,” Bishop cautions. A gas card that is not co-branded with a major card network can only be used at that specific gas station and tends to have a low limit, so that could help keep your spending and balance manageable.

A low credit limit on a gas card can prevent you from carrying a big balance while helping the issuer limit its own risk. But if you're consistently maxing out your card every month, that won't help your credit score, even if you eventually pay off the balance, because the amount owed on revolving credit makes up 30 percent of your FICO score. (And by paying on time, you are aiding 35 percent of your score, which is payment history.)

“If you are using it and your limit is $500, and you know you're going to be charging $300 in gas [without paying in full each month], that would have a negative impact on your credit score,” Bossler explains. Experts recommend keeping your credit utilization as low as possible, ideally below 10 to 30 percent of your available credit if you can. Of course, when a card has a low credit limit, keeping your utilization low is more challenging. One solution: make weekly payments on the card online if online payment is available. Otherwise, don't charge more than $150 a month on a $500 credit limit card.

While gas credit cards carry a higher interest rate and may not be accepted everywhere, they can help you build your credit if you use them responsibly. iIf you are paying the bill off in full each month, you won't have to worry about the interest rate, because you won't be charged interest on any balance that you roll over to the next month.

Gas cards are a great first tool in the credit tool box. After about a year of responsible credit use, check your score again, and look into qualifying for a general purpose card. Just hang on to the card that began it all for you — the gas card.