Store credit cards can help you build credit as long as you use them responsibly and the activity is reported to the major credit bureaus. If you’re not sure if you’re ready for a traditional credit card, you might consider a retail store credit card as an alternative.
Retail credit cards, also known as store credit cards, are credit cards issued by specific retailers. Some store credit cards are good only at the issuing store (or their partners). Others are cobranded by a network like Visa or Mastercard and accepted anywhere those networks are. Learn the details about store credit cards and building credit here.
Key Points
• Store credit cards, which usually restrict usage to certain stores or chains, can help build credit if activity is reported to the credit bureaus and you use them wisely.
• Store cards often come with higher interest rates, making them costlier for users.
• Credit limits on store cards are typically lower compared to general credit cards.
• Benefits and rewards are usually limited to the issuing store, reducing overall value.
• Late payments can negatively impact credit scores, affecting financial health.
What Is a Store Credit Card?
A store credit card is a credit card that is issued by a specific retailer and usually has perks and benefits associated with that specific store or chain. This category of credit card generally works much like other credit cards, which means they can be useful in building credit as long as they’re used responsibly.
However, store credit cards tend to have higher interest rates and easier approval requirements compared to traditional credit cards.
• Closed-loop store credit cards: The first type of store credit card is a closed-loop store credit card. These can typically only be used at the retailer that issues the card.
• Open-loop store credit cards: Open-loop store credit cards are another type of store credit card. They’re typically co-branded alongside a credit card payment network like Mastercard, American Express, or Visa, and are good anywhere those networks are accepted.
Is Getting a Store Credit Card a Good Idea?
Getting a store credit card can be a good option if you are working on establishing credit. If your store credit card reports usage to the major credit bureaus, then responsibly using a store credit card can be helpful. However, this can work against you, too, if you open a store credit card and don’t follow good credit card habits.
Factors to Consider When Getting a Store Credit Card
The biggest factor you’ll want to consider when getting a store credit card is whether it’s a closed-loop or open-loop card. That will let you know whether you can only use it at the issuing store or whether it’s good at other places.
You’ll also want to understand whether your store card is a charge card or credit card (with a charge card, you won’t have the option to carry a balance). Also find out whether the issuer reports usage to the major credit bureaus, especially if you intend to use the card to build your credit from scratch.
Store credit cards can help build your credit, as long as the card reports usage information to the major credit bureaus. Responsibly using a store credit card can show a history of on-time payments and add an additional line of credit to your credit mix. Additionally, it has the potential to positively affect your overall credit utilization — the amount of your total available credit limit you’re using — by bolstering your overall credit limit.
Can a Store Credit Card Set Back Your Credit Progress?
It’s important to use credit cards wisely, and that includes store credit cards. A store credit card certainly can set back your credit progress if you don’t use it responsibly. If you have late or missed payments or carry a balance that’s near your total credit limit, it may have a negative impact on your credit score.
Do Store Credit Cards Applications Require Hard Inquiries?
Yes, in most cases a store credit card application will generate a hard vs. soft inquiry on your credit report. A hard credit inquiry shows up on your credit report when a potential lender asks for your complete credit report. This inquiry may lower your credit score by a few points for a short period of time, so you’ll want to limit how many credit accounts you apply for.
Benefits of Store Credit Cards
One benefit of a store credit card is that it may be easier to get approved for, especially if it’s a closed-loop store card. Retailers know that cardholders are likely to shop more frequently at their store. As such, they may be more inclined to approve you for a card, even if you don’t have an extensive history of good or excellent credit.
Another potential benefit is the store-specific perks, rewards, or benefits that a store may offer to its cardholders.
Drawbacks of Store Credit Cards
There are downsides to store credit cards to consider as well. For one, they may come with higher interest rates and lower credit limits. It can be easier to drive up your credit utilization ratio, a factor that affects your credit score, with a lower credit limit. Further, if your store credit card is a closed-loop card, you’ll be limited to using it at that specific retailer.
To recap, here are some of the pros and cons of applying for and using a store credit card:
Pros of Store Credit Cards
Cons of Store Credit Cards
Easier to get approved for than a traditional credit card
May come with higher interest rates
Can offer solid store-specific perks, benefits, and rewards
May have lower credit limits, which can make it easier to drive up credit utilization
Can help you build credit when used responsibly
Closed-loop store cards can only be used at that specific store or chain
If applying for and using a store credit card doesn’t fit into your financial plans, here are a few other ways to build credit that you might consider:
A store credit card can help you build credit, as long as it reports usage to the major credit bureaus and you use it responsibly. In fact, opening a store credit card and using it wisely can be a smart step toward establishing credit since, in many cases, they’re easier to get approved for than a traditional credit card.
Whether you're looking to build credit, apply for a new credit card, or save money with the cards you have, it's important to understand the options that are best for you. Learn more about credit cards by exploring this credit card guide.
FAQ
Do store credit cards affect your credit?
Yes, store credit cards can affect your credit if they report usage and history to the major credit bureaus. If you regularly pay off your bill each month and keep your statement balance low, it should help build a positive credit history.
Do store credit cards require hard credit checks?
Yes, most store credit cards require a hard credit check when you apply. A hard credit check (or hard pull) happens any time a potential lender asks for your full credit history to help decide whether they will extend you credit. Because each hard pull can temporarily lower your credit score by a few points, you’ll want to limit how many new credit accounts you apply for in a short period of time.
Will closing store credit cards hurt my credit score?
There are some cases where closing a credit card — either a store credit card or a traditional credit card — can hurt your credit score. The main reason why closing a credit card can impact your credit score is by possibly driving up your credit utilization percentage, as your overall credit limit will decrease. In addition, it could shorten your credit history. Make sure that you understand the possible ramifications before you close a credit card account.
Do retail credit cards build credit?
Retail credit cards can help you build credit as long as they report to the major credit bureaus. Just make sure to use your store or retail credit cards wisely so that it will have a positive impact on your credit score.
Photo credit: iStock/Nastasic
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
This content is provided for informational and educational purposes only and should not be construed as financial advice.
Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .
Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
Third Party Trademarks: Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®
You can build credit with a jewelry purchase if you buy it using a payment plan or with a credit card. When doing so, snagging that watch, engagement ring, or diamond bracelet could help you build your credit score from scratch or take your three digits up a notch or two. To do so, you would have to pay your bills on time and make sure your credit utilization doesn’t rise too high. Learn the details here.
Key Points
• Buying jewelry can indirectly build credit through installment plans and store credit cards.
• Installment plans may or may not be reported to the credit bureaus.
• Store credit cards often have lower credit limits and higher interest rates.
• Regular, timely payments on store credit cards or installment plans that are reported to the credit bureaus can build credit scores.
• Consider the terms and conditions before applying for an installment plan or store credit card.
Options for Buying Jewelry on Credit
By purchasing jewelry on credit, it’s possible to build your credit score. Here are a couple of ways that you can do so.
Jewelry Store Financing
Here are two common options:
• Most major jewelry stores offer payment plans, where you pay for your jewelry purchase in installments. This activity may be reported to the credit bureaus. What’s more, you might be able to take advantage of a promotional offer, which could offer interest-free financing for six to 12 months.
While an installment plan can help you build credit, you could end up paying interest on your purchase even with a promotional offer. If you’re late on payments or don’t pay off your balance in time, expect to pay significantly more. Further, to qualify for financing through a retailer, you’ll likely need stellar credit, which is a tall order if you’re building credit from scratch.
• Alternatively, some retailers might allow you to finance your purchase with a buy now, pay later (BNPL) plan. A type of installment plan, a BNPL plan requires you to make an initial payment upfront, then divides the remaining balance into equal installments. You’ll then get billed to your credit card until you’ve paid off the amount owed in full.
Say you’re planning to propose and agree to engagement ring financing under a BNPL plan. Many plans offer a “pay-in-four” model, where your purchase is divided into four installments, each of which is due every two weeks. If the engagement ring costs $5,500 — which is the average engagement ring cost — you would pay $1,375 initially, then $1,375 every two weeks over the course of six weeks. The pay-in-four setup means you likely wouldn’t owe interest, though longer term plans may charge an annual percentage rate (APR).
If you’re building credit from scratch or have credit that’s poor or fair, then a retailer credit card from a jewelry store might be a solid route to take. Many jewelry store credit cards only require fair credit in order to open an account.
You can also try getting a credit card from a department store that sells jewelry. Typically, retailer or store credit cards are easier to get approved for when you have less-than-great credit. However, note that they also typically come with higher interest, low credit limits, and some constraints, such as only being able to use the card with the retailer.
As mentioned, building credit with jewelry purchases is possible if you tap into a financing option that reports your payment activity to the major credit bureaus. Options that do so can include financing through a jewelry store, using a jewelry or retailer credit card, or signing up for a buy now, pay later (BNPL) plan.
Of course, for any of those options to help you with establishing credit, you’ll need to stay on top of making your payments on time. Also make sure you’re adhering to other responsible credit behaviors, such as avoiding maxing out your credit limit if you opt for a jewelry store credit card.
How Jewelry Store Credit Cards Can Impact Your Credit Score
When you use a jewelry store credit card, your payments are reported to the credit bureaus. If you’re using your card responsibly and making payments on time, that activity can help to build your credit score. On the flipside, if you fall behind on payments or miss a due date, your credit score could suffer.
Payment history isn’t the only factor that will impact your credit score though. Applying for the credit card will result in a hard inquiry, which usually temporarily lowers your credit score by a bit. And you’ll want to think twice about canceling your card after making your jewelry purchase and paying it off — doing so could affect the length of your credit history, another factor that helps determine your credit score.
Retailers can earn money on interest charges from financing, and potentially get you to make a more expensive purchase than you otherwise would have if you didn’t finance. As such, they have good reason to persuade you to finance that stunning piece of jewelry you’ve had your eye on.
Here are some tactics they might employ to get you to agree to a payment plan or use a retailer credit card:
• Zero-interest promotional offers: By offering a no-interest promotional period on a payment plan or credit card, a jewelry store may encourage you to purchase.
• In-store promotions: You might see a poster or flier while perusing the jewelry cases. This might motivate you to make your purchase now — as opposed to treating it as an item worth saving for — and therefore agreeing to financing.
• Several financing options: The sales representative at the store might offer a few ways for you to finance that piece of jewelry, such as an installment plan, BNPL program, or by opening a jewelry store credit card.
Before agreeing to anything, make sure to ask questions to ensure you fully understand what you’d be getting into. You might even consider leaving the store and then coming back later, to give yourself time to think about your purchase and assess the financing options.
What to Ask Before Using a Jewelry Store Credit Card
If you’re considering opening a jewelry store credit card, here are some questions to ask yourself before submitting your application:
• Can I afford to pay it off? While using a jewelry store credit card can help you build credit and make that large purchase affordable, do some simple math before moving ahead. Determine how long it will take to pay off the balance on the card and whether those payments realistically work within your current budget.
• What’s the APR? If you’re using a credit card to cover your jewelry purchase, you might not be in a position to pay off your full balance when the due date hits. As such, you’ll want to be aware of the credit card’s annual percentage rate (APR) to determine how much interest will add to the total cost of your jewelry purchase.
• Is there a promotional period? If you qualify for a no-interest promotional period, it’s important to know how long it will last and when the standard interest rate will kick in. Aim to pay off your purchase before that happens to avoid paying interest.
What to Avoid When Buying Jewelry With Credit
When financing jewelry to build credit, there are a few big things to keep in mind that can help you steer clear of financial trouble.
• You’ll want to avoid putting too much on your card. Doing so can drive up your credit utilization ratio, which compares how much of your overall credit you’re using and plays a role in determining your credit score. For example, if you have one credit card with a credit limit of $1,000 and you’re buying a $600 piece of jewelry, that would push your credit utilization to 60%. It’s typically recommended to keep your credit utilization ratio below 30%.
• You’ll likely want to avoid opening a credit card with a promotional offer that’s too short for you to comfortably pay off your balance before it ends. If you’re still making payments when the standard interest rate kicks in, you could end up paying a lot in interest — and making your jewelry purchase that much more expensive.
• Be aware of whether you’re splurging on something that you might not have bought otherwise. While investing in precious metals might seem like a good move, putting something on credit can create the illusion that you can afford it. But in reality, the purchase could end up costing you even more in the long run, thanks to the addition of interest charges.
Besides buying jewelry to build credit, here are a few other ways that you can do so:
• Get a secured card.
• Take out a credit-builder loan.
• Become an authorized user on someone else’s credit card.
• Take out a personal loan.
• Use an auto loan to finance your next car purchase.
• Sign up for a service that reports your rent and utilities payments to the credit bureaus.
• Get a credit card, and then use it responsibly.
The Takeaway
If you’re curious about how to build credit with jewelry, consider financing your jewelry purchase by taking out a payment plan or by opening a jewelry store credit card. Before doing so, however, know that store payment plans usually require that you have strong or excellent credit.
Rest assured, buying jewelry isn’t the only way to build credit. There are other options available, such as using credit cards wisely.
Whether you're looking to build credit, apply for a new credit card, or save money with the cards you have, it's important to understand the options that are best for you. Learn more about credit cards by exploring this credit card guide.
FAQ
Do you need good credit to finance jewelry?
If you’d like in-store financing for jewelry, such as an installment plan, then you typically need excellent credit. However, retail credit cards usually only require a fair credit score.
Are there jewelry stores that give credit?
Yes, major jewelry stores usually offer installment plans, and some might have a branded retail credit card that you can apply for.
Is it easy to get credit at jewelry stores?
Retail credit cards are usually easier to qualify for than other types of credit cards, even if you have fair credit. However, while they’re often easier to get approved for, they often come with higher APRs, low credit limits, and various restrictions.
Photo credit: iStock/pixelfit
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
This content is provided for informational and educational purposes only and should not be construed as financial advice.
Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .
Third Party Trademarks: Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®
There are millions of credit card accounts in the United States alone, and it’s estimated that 90% of adults in the U.S. have at least one credit card. Yet, many people don’t have a firm grasp on the basics of what a credit card is and how credit cards work.
If you have a credit card account, or plan on ever using one, it’s important to understand the fundamentals of credit cards. This ranges from what a credit card is to how credit card interest works to how credit cards relate to credit scores.
Key Points
• Credit cards allow users to borrow money for purchases, with repayment typically due monthly.
• Interest is charged on unpaid balances, and rates vary based on creditworthiness.
• Credit card companies report payment history to credit bureaus, impacting credit scores.
• Rewards programs offer cash back, points, or miles for spending, with varying terms.
• Late payments can result in fees and increased interest rates, negatively impacting credit scores.
What Is a Credit Card?
A credit card is a type of payment card that is used to access a revolving line of credit.
Credit cards differ from other types of loans in that they offer a physical payment card that is used to make purchases. Traditionally, credit cards are made of plastic, but an increasing number of credit card issuers now offer metal cards, usually for their premium accounts that offer travel rewards.
But a credit card account is much more than a plastic or metal payment card. A credit card account is a powerful financial tool that can serve many purposes. Here’s a closer look:
• It can be a secure and convenient method of payment anywhere that accepts credit card payments. It also can be used to borrow money in a cash advance or to complete a balance transfer.
• Credit cards can offer valuable rewards, such as cash back and travel rewards like points or miles. Cardholder benefits can also include purchase protection and travel insurance policies.
• If used responsibly, a credit card can help you to build your credit score and history, which can open up new borrowing opportunities.
• Of course, credit cards can also damage your credit when used irresponsibly. If you rack up debt on your credit card, it can be hard to get it paid off and get back in the clear (here, for instance, is what happens to credit card debt when you die).
Credit cards offer a line of credit that you can use for a variety of purposes, including making purchases, completing balance transfers, and taking out cash advances. You can borrow up to your credit limit, and you’ll owe at least the minimum payment each month.
You can apply for a credit card from any one of hundreds of credit card issuers in the U.S. Card issuers include national, regional, and local banks, as well as credit unions of all sizes. Card issuers will approve an application based on the credit history and credit score of the applicant, among other factors.
There are credit cards designed for people with nearly every credit profile, from those who have excellent credit to those with no credit history or serious credit problems. As with any loan, those with the highest credit score will receive the most competitive terms and benefits.
Once approved, you’ll likely receive a credit limit that represents the most you can borrow using the card. Whether your limit is above or below average credit card limit depends on a variety of factors, including your payment history and income.
The credit card is then mailed to the account holder and must be activated before use. You can activate a credit card online or over the phone. So long as your account remains in good standing, it will be valid until the credit card expiration date.
Once activated, the card can be used to make purchases from any one of the millions of merchants that accept credit cards. Each card is part of a payment network, with the most popular payment networks being Visa, Mastercard, American Express, and Discover. When you make a payment, the payment network authenticates the transaction using your card’s account number and other security features, such as the CVV number on a credit card.
Every month, you’ll receive a statement from the card issuer at the end of each billing cycle. The statement will show the charges and credits that have been made to your account, along with any fees and interest changes being assessed.
Your credit card statement will also show your balance, minimum payment due, and payment due date. It’s your choice whether to pay your minimum balance, your entire statement balance, or any amount in between. Keep in mind that you will owe interest on any balance that’s not paid back.
If you don’t make a payment of at least the minimum balance on or before the due date, then you’ll usually incur a late fee. And if you pay more than your balance, you’ll have a negative balance on your credit card.
There are a number of potential fees that credit card holders may run into. For example, some credit cards charge an annual fee, and there are other fees that some card issuers can impose, such as foreign transaction fees, balance transfer fees, and cash advance fees. Cardholders may also incur a late fee if they don’t pay at least the minimum due by their statement due date.
Often, however, you can take steps to curb credit card fees, such as not taking out a cash advance or making your payments on-time. For a charge like an annual fee, cardholders will need to assess whether a card’s benefits outweigh that cost.
3 Common Types of Credit Cards
There are a number of different kinds of credit cards out there to choose from. Here’s a look at some of the more popular types.
Rewards Credit Cards
As the name suggests, rewards credit cards offer rewards for spending in the form of miles, cash back, or points — a rewards guide for credit cards can give you the full rundown of options. Cardholders may earn a flat amount of cash back across all purchases, or they may earn varying amounts in different categories like gas or groceries.
Some programs, like SoFi Plus, provide exclusive benefits that go beyond standard rewards, offering additional perks for members who qualify
Balance Transfer Credit Cards
Balance transfer cards allow you to move over your existing debt to the card. Ideally, this new card will have a lower interest rate, and often they’ll offer a lower promotional rate that can be as low as 0% APR. However, keep in mind that this promo rate only lasts for a certain period of time — after that, the card’s standard APR will kick back in.
Secured Credit Cards
If you’re new to credit or trying to rebuild, a secured credit card can be a good option. Generally, when we talk about credit cards, the default is an unsecured credit card, meaning no collateral is involved. With a secured credit card, you’ll need to make a deposit. This amount will generally serve as the card’s credit limit.
This deposit gives the credit card issuer something to fall back on if the cardholder fails to pay the amount they owe. But if you’re responsible and get upgraded to a secured credit card, or if you simply close your account in good standing, you’ll get the deposit back.
How Does Credit Card Interest Work?
The charges you make to your credit card are a loan, and just like a car loan or a home loan, you can expect to pay interest on your outstanding credit card balance.
That being said, nearly all credit cards offer an interest-free grace period. This is the time between the end of your billing period and the credit card payment due date, typically 21 or 25 days after the statement closing date. If you pay your entire statement balance before the payment due date, then the credit card company or issuer will waive your interest charges for that billing period.
If you choose not to pay your entire statement balance in full, then you’ll be charged interest based on your account’s average daily balance. The amount of interest you’re charged depends on your APR, or annual percentage rate. The card issuer will divide this number by 365 (the number of days in the year) to come to a daily percentage rate that’s then applied to your account each day.
As an example, if you had an APR of 15.99%, your daily interest rate that the card issuer would apply to your account each day would be around 0.04%.
As an example, if you had an APR of 24.99%, your daily interest rate that the card issuer would apply to your account each day would be around 0.07%.
Although they look almost identical, much differs between debit cards vs. credit cards. Really, the only thing that debit cards and credit cards truly have in common is that they’re both payment cards. They both belong to a payment network, and you can use them to make purchases.
With a debit card, however, you can only spend the funds you’ve already deposited in the checking account associated with the card. Any spending done using your debit card is drawn directly from the linked account. Because debit cards aren’t a loan, your use of a debit card won’t have any effect on your credit, positive or negative.
But since it isn’t a loan, you also won’t be charged interest with a debit card, nor will you need to make a minimum monthly payment. You will, however, need to make sure you have sufficient funds in your linked account before using your debit card.
Another key difference between credit cards vs. debit cards is that credit card users are protected by the Fair Credit Billing Act of 1974. This offers robust protections to prevent cardholders from being held responsible for fraud or billing errors. Debit card transactions are subject to less powerful government protections.
Lastly, debit cards rarely offer rewards for spending. They also don’t usually feature any of the travel insurance or purchase protection policies often found on credit cards. You likely won’t be on the hook for an annual fee with a debit card, which is a fee that some credit card issuers do charge, though you could face overdraft fees if you spend more than what’s in your account.
To recap, here’s an overview of the differences between credit cards and debit cards:
Credit cards
Debit cards
Can be used to make purchases
Yes
Yes
Can be used to borrow money
Yes
No
Must deposit money before you can make a purchase
No
Yes
Must make a minimum monthly payment
Yes
No
Can provide purchase protection and travel insurance benefits
Often
Rarely
Can offer rewards for purchases
Often
Rarely
Can help or hurt your credit
Yes
No
Can use to withdraw money
Yes, with a cash advance
Yes
Pros and Cons of Using Credit Cards
Beyond knowing what a credit card is, it’s important to familiarize yourself with the pros and cons of credit cards. That way, you can better determine if using one is right for your financial situation.
To start, notable upsides of using credit cards include:
• Easy and convenient to use
• Robust consumer protections
• Possible access to rewards and other benefits
• Ability to avoid interest by paying off monthly balance in full
• Potential to build credit through responsible usage
However, also keep these drawbacks of using credit cards in mind:
• Higher interest rates than other types of debt
• Temptation to overspend
• Easy to rack up debt
• Various fees may apply
• Possible to harm credit through irresponsible usage
How to Compare Credit Cards
Since there are hundreds of credit card issuers, and each issuer can offer numerous individual credit card products, it can be a challenge to compare credit cards and choose the one that’s right for your needs. But just like purchasing a car or a pair of shoes, you can quickly narrow down your choices by excluding the options that you aren’t eligible for or that clearly aren’t right for you.
Start by considering your credit history and score, and focus only on the cards that seem like they align with your credit profile. You can then narrow it down to cards that have the features and benefits you value the most. This can include having a low interest rate, offering rewards, or providing valuable cardholder benefits. You may also value a card that has low fees or that’s offered by a bank or credit union that you already have a relationship with.
Once you’ve narrowed down your options to a few cards, compare their interest rates and fees, as well as their rewards and benefits. You can find credit card reviews online in addition to user feedback that can help you make your final decision.
Important Credit Card Terms
One of the challenges to understanding how credit cards and credit card payments work is understanding all of the jargon. Here’s a small glossary of important credit card terms to help you to get started:
• Annual fee: Some credit cards charge an annual fee that users must pay to have an account. However, there are many credit cards that don’t have an annual fee, though these cards typically offer fewer rewards and benefits than those that do.
• APR: This stands for annual percentage rate. The APR on a credit card measures its interest rate and fees calculated on an annualized basis. A lower rate is better for credit card users than a higher rate.
• Balance transfer: Most credit cards offer the option to transfer a balance from another credit card. The card issuer pays off the existing balance and creates a new balance on your account, nearly always imposing a balance transfer fee.
• Card issuer: This is the bank or credit union that issues the card to the cardholder. The card issuer the company that issues statements and that you make payments to.
• Cash advance: When you use your credit card to receive cash from an ATM, it’s considered a cash advance. Credit card cash advances are usually subject to a much higher interest rate and additional fees.
• Chargeback: When you’ve been billed for goods or services you never received or that weren’t delivered as described, you have the right to dispute a credit card charge, which is called a credit card chargeback. When you do so, you’ll receive a temporary credit that will become permanent if the card issuer decides the dispute in your favor.
• Due date: This is the date you must make at least the credit card minimum payment. By law, the due date must be on the same day of the month, every month. Most credit cards have a due date that’s 21 or 25 days after the statement closing date.
• Payment network: Every credit card participates in a payment network that facilitates each transaction between the merchant and the card issuer. The most common payment networks are Visa, Mastercard, American Express, and Discover. Some store charge cards don’t belong to a payment network, so they can only be used to make purchases from that store.
• Penalty interest rate: This is a separate, higher interest that can apply to a credit card account when the account holder fails to make their minimum payment on time.
• Statement closing date: This is the last day of a credit card account’s monthly billing cycle. At the end of this day, the statement is generated either on paper or electronically, or both. This is the day on which all the purchases, payments, fees, and interest are calculated.
Credit Cards and Credit Scores
There’s a lot of interplay between credit cards and your credit score.
For starters, when you apply for a new credit card, that will affect your score. This is because the application results in a hard inquiry to your credit file. This will temporarily ding your score by a few or several points, and it will remain on your credit report for two years, though the effects on your credit don’t last as long.
Further, how you use your credit card can impact your credit score — either positively or negatively. Having a credit card could increase your credit mix, for instance, which can have a positive impact. Or, closing a longstanding credit card account may shorten the age of your accounts, resulting in a negative impact to your score.
Making timely payments is key to maintaining a healthy credit score, as is keeping a low credit utilization rate (the amount of your overall available credit you’re currently using). If you max out your credit card or miss payments, that won’t bode well for your credit score. Conversely, staying on top of payments can be a great step toward building your credit.
The Takeaway
Credit cards work by giving the account holder access to a line of credit. You can borrow against it up to your credit limit, whether for purchases and cash advances. You’ll then need to pay back the amount you borrowed, plus interest, which is typically considered to be a high rate vs. other forms of credit. For this reason, it’s important to spend responsibly with a credit card.
Whether you're looking to build credit, apply for a new credit card, or save money with the cards you have, it's important to understand the options that are best for you. Learn more about credit cards by exploring this credit card guide.
FAQ
How does a person shop for a credit card?
To shop for a credit card, start by looking at your credit score to determine what cards you may be able to qualify for. Then, decide what kind of card is best for your needs, such as a card that has a low interest rate, one that will allow you to build credit, or a card that offers rewards. Finally, compare similar products from competing card issuers to assess which is the most competitive offer available to you.
Can I use my credit card abroad?
Yes, most credit card payment networks are available in most countries. As long as you visit a merchant that accepts cards from the same payment network that your card belongs to, then you’ll be able to make a purchase.
How do you use a credit card as a beginner?
If you’re new to credit and working to build your score, you’ll want to make sure you’re as responsible with your card as possible. Pay your bill on time, and aim to pay in full if you can to avoid interest charges. Use very little of your credit limit — ideally no more than 30%. And make sure to regularly review your credit card statements and your credit report. But don’t let any of that scare you away from using your card either — it’s important to regularly use your card for small purchases to get your credit profile built up.
How do credit cards work in simple terms?
Credit cards offer access to a line of credit. You can borrow against that, up to your credit limit, for a variety of purposes, including purchases and cash advances. You’ll then need to pay back the amount you borrowed.
How do payments on a credit card work?
At the end of each billing cycle, you’ll receive a credit card statement letting you know your credit card balance, minimum payment due, and the statement due date. You’ll then need to make at least the minimum payment by the statement due date to avoid late fees and other consequences. If you pay off your full balance, however, you’ll avoid incurring interest charges. Otherwise, interest will start to accrue on the balance you carry over.
Photo credit: iStock/Katya_Havok
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
This content is provided for informational and educational purposes only and should not be construed as financial advice.
Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
Third Party Trademarks: Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®
Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .
In many cases, you can pay your taxes with a credit card. Whether you want to pay the IRS with a credit card so that you can earn rewards or have a bit of financial breathing room, it’s important to be aware of the implications of using such a payment method, such as fees and interest you may pay. Read on to learn more about how to pay taxes with a credit card.
Key Points
• Paying taxes with a credit card is often possible.
• Paying taxes with a credit card can earn rewards like cash back, miles, or points.
• Third-party processing fees for credit card tax payments can cost a couple or a few percentage points of the balance due.
• Using a 0% APR credit card allows spreading tax payments interest-free.
• High interest charges can apply if the tax balance is not paid off promptly.
Can You Pay Federal Taxes With a Credit Card?
Yes, you can. More specifically, you can pay your federal taxes with a credit card (and in some cases, you may even be able to pay your state taxes with one as well). The IRS offers different third-party payment processors that accept credit card payments for taxes.
Keep in mind that if you pay the IRS with a credit card, this type of transaction isn’t free, given how credit cards work. Whichever third-party payment service provider you choose, you’ll be charged additional processing fees for the convenience of using your credit card to pay taxes. For example, all of the third-party options charge a percentage of the amount you’ll be paying in taxes, but there’s also a minimum flat fee you’ll owe.
In addition, there may be limitations on how many times you can use your credit card for IRS payments. For instance, if you wanted to pay your personal income taxes, you can only do so twice per year for the current tax year due. However, if you worked out a monthly payment plan with the IRS, you can pay with a credit card up to two times per month.
What to Know Before Paying Taxes With a Credit Card
Before pulling out your credit card to pay your taxes, it’s important to know what your goals are. Here are some common reasons taxpayers choose to pay their taxes with a credit card:
• You may earn rewards points, cash back, or miles. Many consumers love to earn perks offered by their credit card issuers and see it as a major benefit of what a credit card is. Even with the additional fees associated with paying taxes with a credit card, you may feel like the rewards offset what you’ll pay. In other words, if the value of the rewards is much higher than the service fees, it might be worth using your card. As an example, say you’ll be able to earn 4,000 rewards points from your tax payment, which equates to $100 toward a flight or hotel room. If you owe $3,000 in federal taxes and the third-party payment service charges a 2% fee, you’re effectively paying $60 in fees to earn $100 in rewards. Whether that’s worth it is up to you.
• It’s possible to earn a major rewards bonus. If you signed up for a new rewards credit card and need to meet a minimum spending threshold to earn a huge bonus, it might be worth considering paying your taxes with that credit card. For instance, if you signed up for a credit card offering 50,000 bonus miles — an equivalent to $1,000 worth of travel — paying a $4,000 tax bill with a payment service charge of 2% equates to $80 in fees. Assuming that meets your minimum spending threshold, the value you receive is pretty high. Just make sure you can make more than your credit card minimum payment, and ideally your full balance, to avoid interest accruing.
• You’ll gain the ability to spread out your payment. Paying taxes with a credit card might be worth considering if you’re looking for a low-cost way to spread out your tax payments. If you have excellent credit, you may qualify for a credit card offering a 0% introductory annual percentage rate (APR), meaning you’ll have time until the offer runs out to pay off your taxes interest-free. Sure, you’re paying card processing service fees, but that could be worth it to spread out your payments. However, many credit card companies have terms and conditions that stipulate how you can remain in good standing for the introductory offer for the APR on a credit card — make sure you’re following them, or you could end up paying a high amount in interest.
What Is the Fee for Paying Taxes With a Credit Card?
As mentioned, the amount of the fee you’ll owe for paying taxes with a credit card will vary depending on which payment processor you use. Here’s a look at how much each processor’s fees run:
Payment Processor
Fee Rate
Minimum Fee
Pay1040
2.89%
$2.50
ACI Payments, Inc.
1.85%
$2.50
Pros and Cons of Paying Taxes With a Credit Card
There are advantages and disadvantages to paying the IRS with a credit card. Here’s an overview of the pros and cons, which will be covered in more detail below:
Pros of Paying Taxes With a Credit Card
Cons of Paying Taxes With a Credit Card
Earn cash back and credit card rewards
Third-party payment processors charge fees
Meet spending thresholds for bonus rewards earnings
Rewards earnings may not offset fees paid
Use a convenient form of payment
Potentially pay high credit card interest rates if you carry a balance or the introductory APR period ends before your balance is paid off
Spread out payments interest-free if using a card with 0% introductory APR
IRS payment plan interest rates may be lower than what’s offered by credit cards
Pros of Paying Taxes With a Credit Card
There are the major upsides of paying the IRS with a credit card, including:
• You can earn cash back and credit card rewards. By putting the amount of your tax bill on your credit card, you might earn some credit card rewards. Just make sure your rewards earnings will offset any fees you’ll pay (though rest assured, taxable credit card rewards usually aren’t a thing, except in certain cases).
• It can help you meet spending thresholds to earn bonus rewards. Often, credit cards that offer bonuses require you to spend a certain amount within a specified period of time in order to earn them. If you’re struggling to reach that threshold, paying your taxes with your credit card could help, allowing you to snag those bonus rewards.
• It’s a convenient form of payment. Anyone who has paid with a credit card knows it’s easy. You don’t have to fill in various bank account numbers like you otherwise would if you opt to cover your tax bill with a credit card.
• You can spread out payments — and interest-free, if you have a 0% APR card. If you’re tight on cash or simply want to spread out your tax payment, a credit card can enable you to do so. Even better, if you have a card that offers 0% APR, you’ll avoid paying any interest while you space out your payments.
Cons of Paying Taxes With a Credit Card
It’s not all upsides when it comes to paying taxes with a credit card. Make sure to consider these drawbacks as well:
• You’ll pay third-party processing fees. Perhaps the biggest drawback of paying the IRS with a credit card is you’ll pay fees. The exact amount you pay in fees will vary depending on which third-party payment processor you use, but they can range up to almost 3%. If your tax bill is $1,000, for example, you could pay up to almost $30 in fees.
• The rewards you earn might not offset the fees. If your rewards rate is close to the amount in fees, those two will effectively cancel each other out. In other words, you’ll pretty much break even if you pay roughly the same amount in fees as you earn in credit card rewards, which might not make using a credit card worthwhile.
• You could end up paying interest at a steep rate. If you aren’t able to pay off your balance in full by the statement due date, or if for some reason you don’t pay off your full balance by the time your 0% APR intro offer ends, interest charges will start racking up. Plus, credit card interest rates tend to be pretty high compared to other types of loans.
• There might be lower interest rate payment plans available. If you’re hoping to spread out your payments, using a credit card might not be your most cost-efficient option. The IRS offers a payment plan for those who qualify, and the interest rate can be lower than the APR on a credit card.
If you’ve decided you want to use your credit card for tax payments, here’s how you do it.
1. Decide Which Credit Card to Use
Consider your reasons for using a credit card — is it to earn rewards, meet a minimum spending threshold, or spread out your payments interest-free? Whatever it is, make sure to choose a card that meets your goals. If you want to open a credit card, then you’ll want to make sure you receive the card in time to pay the IRS before the tax filing deadline.
Whatever the amount is, ensure it’s well within your credit card limit. You can spread your payments over multiple credit cards, but keep in mind the transaction limits that the IRS imposes for certain payments.
3. Choose a Third-Party Payment Processor
The IRS website currently lists three approved payment service providers that you can use. Compare which one offers the best features and lowest fees for your situation.
4. Make Your Payment
Once you’ve selected which payment service provider you want to go with, head to their website and follow the instructions. You may be asked to provide information such as the credit card expiration date and CVV number on a credit card. Double check that you’re making the right type of payment and that all the information you’ve entered is accurate before pressing submit.
If you’re not convinced the costs involved in credit card payment are worth it, there are other ways that you can pay your taxes.
Direct Pay With Bank Account
While this option won’t allow you to earn rewards or spread out your payments, you’ll also steer clear of paying any fees or potentially owing interest. To make a tax payment directly from your bank account, you’ll simply need to select this option and provide the requested banking information, such as your bank account and routing numbers.
IRS Payment Plan
If you’re hoping to be able to pay off your balance over time, you can apply for a payment plan with the IRS. You may qualify for a short-term payment plan if you owe less than $100,000 in combined tax, penalties or interest, or you could get a long-term payment plan if you owe $50,000 or less in combined tax, penalties, and interest and have filed all required returns.
Note that this option may involve fees and interest though. The costs involved will depend on which type of plan you’re approved for.
You can pay taxes with a credit card. Paying taxes using a rewards credit card is a great way to earn perks, helping you maximize your spending. However, there are downsides to consider as well, such as the third-party processing fees and the potential to run into high credit card interest if you don’t have a good APR for a credit card.
Whether you're looking to build credit, apply for a new credit card, or save money with the cards you have, it's important to understand the options that are best for you. Learn more about credit cards by exploring this credit card guide.
FAQ
What does it cost to pay taxes with a credit card?
Third-party payment processors charge a service fee to pay your taxes with a credit card. In many cases, it’s typically a percentage of your payment amount, with a minimum flat fee charged.
Does paying taxes with your credit card earn you rewards?
Paying taxes can earn you rewards, depending on the type of credit card you use. Many rewards credit cards offer cash back, miles, or travel points on qualifying purchases. Before doing so, it might be helpful to determine whether the value of the rewards earned will outweigh the fees you’ll pay.
Is it better to pay taxes with a credit card or debit card?
Both methods of paying your taxes can be a great choice, depending on your financial situation. If you’re not interested in earning rewards or spreading out your payments and have the cash on hand, you can pay with a debit card. Some may prefer to pay with a credit card because they feel it’s a more secure way to make payments.
Are credit cards the cheapest way to pay your tax bill?
No. Paying your taxes with a credit card will add an additional fee onto your tax bill, plus you could end up paying interest if you don’t pay off your full statement balance by the due date. Other options, such as direct pay with your bank account don’t involve paying fees or interest.
Can you pay state taxes with a credit card?
It depends. Some states do facilitate tax payments with a credit card. To find out if yours does, check your state’s tax website for more information.
Can you pay property taxes with a credit card?
Once again, it depends which state you live in. Many counties and cities will allow you to pay property taxes with a credit card, though not all do. Reach out to your local tax collector’s office to see which payment options are accepted.
Photo credit: iStock/Moyo Studio
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
This content is provided for informational and educational purposes only and should not be construed as financial advice.
Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.
Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
Third Party Trademarks: Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®
It is possible to use your utility bill payment history to help build credit. However, utility bills, like your gas, water, and power bills, aren’t automatically reported to the credit bureau agencies. To get them reported — and thus to have your utility bills affect your credit score — you’ll typically need to work through a third-party company that reports your utility bill payments so they show up on your credit report.
If you’re interested in making this happen, read on, and also learn other options to help establish your credit score.
Key Points
• Utility companies typically don’t report payment activities to credit bureaus unless the bills are delinquent.
• Third-party services can report utility payments for a fee and occasionally for free.
• If a service reports utility payments to the credit bureaus, on-time payments can help build a credit score.
• Late payments that are reported to the credit bureaus can damage credit scores.
• Using a credit card to pay for utilities can help build credit, as can using a service to report other payment activity (such as rent) to the bureaus.
How Do Utility Bill Payments Appear on My Credit Report?
Utility bill payments typically do not automatically appear on your consumer credit report. That’s because they’re not considered credit accounts. When you pay for utilities, you are paying for a service, rather than opening and maintaining a line of credit, or borrowing money that you then repay over time.
However, utility bill payments can appear on your credit report if you work with a third-party service that does the reporting on your behalf. These services typically charge a small monthly fee, but there are companies that offer this free of charge. If you’re paying utility bills on time, then getting that information reported to the credit bureaus could help to build credit.
How Do Utility Bill Payments Affect Your Credit Score?
While utility bill payments don’t appear on your credit report, they still can ding your credit score if you fall behind on payments, and the balance you owe becomes delinquent and goes to collections. Under the Fair Credit Reporting Act, debt can linger on your credit report for up to seven years. Because your payment history makes up a lion’s share of your credit score, a debt that enters collections and then remains on your report can have a significant impact on your credit score.
On the flipside, utility bills also have the potential to build credit. As mentioned, this could occur if you sign up to have your utility payments reported to the three major credit bureau agencies, and you consistently make your payments on time. To ensure this happens, you might consider setting up automatic bill payments.
Utility bills could also help build your credit score if you opt to pay bills with a credit card. Staying on top of your credit card payments is a key determinant of your credit score though, so just make sure to pay off your statement balance on time and in full when it becomes due. That way, you’ll avoid late payment consequences and also dodge paying interest on the utility bill payments charged to your card.
By making credit card payments when they are due, you’ll avoid late payment consequences and also dodge paying interest on the utility bill payments charged to your card.
Can Late Utility Bill Payments Affect Credit?
Late utility bill payments can hurt your credit if you miss enough payments for your account to enter “delinquent” status, after which it would get sent to collections or get handled as a charge-off. If this happens, that information can stay on your credit report for up to seven years. (It can be wise to check your credit report at least once a year, to make sure that it properly reflects your history.)
Similarly, if you sign up for a credit reporting service but then are late on making payments, that late payment activity could negatively impact your score. Often services will not report late payments for utility bills too.
Still, given the potential consequences of late payments, organizing your bills is a good idea to help ensure you pay on time and don’t lose track of due dates.
Your payment of the following bills will generally show up on your credit report and as such will have an impact on your credit score:
• Car payments
• Credit card payments
• Student loan payments
• Mortgage payments
Similarly to your utility bills, some bills have the potential to impact your credit, but don’t automatically show up on your credit report. However, you may be able to sign up for a credit reporting service or pay them using your credit card to have them help build your score. These types of bills include your rent payments, insurance payments, and bills for services like internet and cable.
Other Ways to Build Credit
Beyond your utility bills, there are other ways you can establish credit. This includes:
While paying utilities doesn’t automatically establish credit, it can help your score if you work with a third-party service to have your payment activity reported and pay those bills on time. There are other ways you can build credit from scratch as well, such as taking out a personal loan or opening a credit card account, and then handling payments responsibly.
Whether you're looking to build credit, apply for a new credit card, or save money with the cards you have, it's important to understand the options that are best for you. Learn more about credit cards by exploring this credit card guide.
FAQ
What is the impact of paying your utility bills early on your credit score?
Typically, utility bills are not reported to the credit bureaus and therefore don’t impact your credit score. However, if you work with a third-party service, you could have your utility bills reported. In this instance, paying your utility bills on time could help build your score.
Are utility bill payments reported to a credit reporting service?
Utility bill payments can be reported to a credit reporting service if you sign up for an account and opt in to have your utility bills reported. You might need to pay a monthly fee for this service though.
Photo credit: iStock/tommaso79
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
This content is provided for informational and educational purposes only and should not be construed as financial advice.
Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .
Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
Third Party Trademarks: Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®
