Can Cash Back Credit Cards Improve Your Credit Score?
Can Cashback Credit Cards Improve Your Credit Score? Well, maybe. It depends on how you use them. Here’s what you need to know.
What is a cashback credit card?
Think of it as a type of reward card. You spend money on your cashback credit card and get a certain amount back depending on what you spend. Usually the cashback is credited to your card which can lower your bill. Sometimes, however, it gets credited to your bank account – it just depends on the card.
- The amount of cashback you get depends on the terms set by the card provider.
- You can also pay an annual fee, depending on the card you choose.
- It’s similar to a rewards credit card, where you get points and other rewards every time you spend.
Cashback credit cards can work for people who treat them like debit cards and spend them regularly.
Can Cash Back Credit Cards Improve My Credit Score?
They can, yes.
Think of it this way: if the cashback goes to your bill, your monthly payments could be lower. Lower repayments are easier to manage, so there is less risk of default.
In short, making the minimum payment each month shows lenders that you are responsible for the money, which can improve your score over time.
That said, like with any credit card, if you max out your credit limit each month, you could end up lowering your credit score. Why? It comes down to your “credit utilization ratio”. This ratio is basically the amount of credit you have over the amount of credit you actually use each month.
Could you be rewarded for your daily expenses?
Rewards credit cards include programs that simply reward you for using your credit card. When you spend money on a reward card, you can earn loyalty points, store vouchers, airline miles, and more. MyWalletHero makes it easy for you to find a card that matches your spending habits so you can get the most out of your rewards.
Using all of your available credit makes it seem like you don’t have much control over your finances, making you appear riskier to lenders. It is recommended that you do not use more than 30% of your available credit. So if your card has a limit of Â£ 1000, try to avoid using more than Â£ 300.
Here’s something else to keep in mind: the more you spend on your card, the higher your minimum payments, even with cashback. If the payouts are too high, you might have a hard time keeping up. Missed credit card payments will damage your score.
How to apply for a cashback credit card?
You can apply for a cash back credit card the same way you apply for other credit cards:
- Check your credit score. This tells you how likely you are to be accepted for a new credit card.
- Compare a few credit cards. You can either use a comparison site for this or browse different vendors individually.
- Run an “indirect search” to verify your eligibility for the card you are interested in. These indirect searches don’t affect your credit score, but they can show you where you are most likely to be accepted.
- Submit your application. If you are accepted, you should receive your new card within approximately 10 days.
How else can I build my credit score?
If you think a cash back credit card won’t work for you, here’s how you can otherwise create credit:
- Always pay your bills on time.
- Make sure you are on the voters list.
- Check your credit report and correct any errors.
- Open a bank account, if you don’t already have one.
You might also consider applying for a credit card for people with bad credit history.
So, can cash back credit cards improve your credit score? Sure. However, keep in mind that your score won’t improve overnight and you need to maintain your monthly repayments if you want to increase your score.
Most importantly, don’t take out more credit unless you know you can afford it. Otherwise, you could end up with more debt than you can handle.
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