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If you’re attempting to build credit from scratch, a gas credit card can help. That’s because, similar to other types of credit cards, gas credit cards report your payments to the three major credit reporting bureaus. Further, gas cards are good for building credit because they tend to be easier to get approved for than other types of cards.

On top of that, a gas credit card can allow you to save on gas by earning discounts and fuel credits when you fill up your tank and use your card to pay for transactions. Here’s all you need to know about gas credit cards, including how to get a gas card to build credit.

Understanding Gas Credit Cards and How They Work

A gas credit card works similarly as other types of credit cards in that it offers access to a revolving line of credit. In other words, you have a credit limit that’s set ahead of time. You can borrow up to that limit, and then repay the debt over time through monthly payments. If you carry a balance from month to month, you’ll pay interest.

There are two main types of gas credit cards:

•   Gas station cobranded credit cards: Also known as a single-purpose or closed-loop card, a gas station cobranded credit card is a card that you can only use to make purchases from a single company. In this case, you could only use the card when you pump gas from a particular gas or oil company, which the card will usually bear the logo of.

•   General-purpose gas credit cards: A traditional gas credit card can be used when you fill up at any gas station, rather than only with one particular brand — marking the difference between gas cards vs. gas station credit cards.

As mentioned, gas credit cards can be a good way to build credit from scratch. Keep in mind that the best rates, terms, and rewards offerings generally are reserved for consumers with strong credit. That being said, some gas cards are easier to get approved for, especially those from a particular oil company or brand.

Another benefit of gas credit cards is that they can offer discounts per gallon or an introductory promotional period where you can receive additional discounts at the pump. For instance, a cobranded gas credit card might offer 30 cents back on each gallon for the first two months after you open an account, and then 10 cents back per gallon after that.

Some general-purpose gas credit cards might also feature rewards, like cash back on everyday purchases up to a certain amount per year.

Tips for Building Credit with a Gas Credit Card

A gas card can build credit because they report your activity and payment history to the three major consumer credit bureaus — Equifax®, Experian®, and TransUnion®. Using one can be a good way to help you establish credit when you’re starting out on your credit journey.

For a gas card to build credit, however, you’ll need to stick to the following credit best practices.

Choose a Card Carefully

If you decide to open a gas credit card, carefully review the terms, rates, and fees. Gas credit cards typically have high interest rates compared to other types of cards, so if you anticipate carrying a balance, you could end up paying a considerable amount on interest charges.

While many gas credit cards don’t carry an annual fee, you might get hit with late fees, balance transfer fees, and returned payment fees. Make sure you’re aware of what fees a gas credit card may charge so you can avoid them.

Pay on Time Each Month

Your payment history is the largest contributing factor to your FICO® credit score. As such, it’s important to make your payments on time, each and every month.

You can keep track of when credit card payments are due with reminders or else set up autopay. You might also aim to pay off your balance in full each month, which will allow you to avoid paying interest on your gas credit card. To do this, set a limit for how much you want to spend on your gas credit card each month and stick to it.

Don’t Spend Up to the Credit Limit

Another factor that influences your credit score is your credit utilization, which is how much of your overall credit limit you’re currently using. It’s generally suggested to keep this credit utilization ratio at no more than 30% to avoid adverse effects to your credit score. If you were to spend up to your credit limit, that would likely drive up your credit utilization well about that recommended threshold.

Recommended: Does Applying For a Credit Card Hurt Your Credit Score?

Keep Track of Your Credit Score

Monitoring your credit score can help you pinpoint behaviors that can impact your credit score, as well as notice any red flags. By keeping an eye on your credit, you can better make adjustments to your habits and spending to ensure you’re making progress on building your credit score.

You can keep track of your credit score in a handful of ways, including by signing up for a free credit monitoring service or possibly through your credit card issuer.

Advantages of Building Credit With Gas Cards

Gas cards absolutely can be good for building credit, and here are the benefits of using one to do so:

•   Savings on gas: A major perk — and the one that is most apparent — is that you can receive discounts at the pump by using a gas credit card.

•   Potentially easier approval: A gas credit card can have easier approval requirements than other types of cards, such as rewards credit cards. This can make it easier to get credit, and therefore start building your credit.

•   Rewards and sign-up bonuses: Gas credit cards might offer rewards, perhaps just on your spending at the pump or more generally across purchases, depending on the type of gas credit card. Some gas credit cards offer a sign-up bonus if you meet a minimum spending requirement within the first few months.

Drawbacks of Building Credit With Gas Cards

There are downsides to using gas cards to build credit as well, including:

•   Potentially restricted use: If you get approved for a credit card that you can only use when you fill up at a gas station from a single gas or oil company, it might take you a bit more work and planning to use your card. That being said, there are some more general use gas cards available.

•   Higher interest rates: If you’re building your credit from scratch and are approved for a card with less stringent financial or credit criteria, this can mean higher credit card interest rates and less generous or attractive card perks.

•   Limits on earnings and rewards programs: While some gas cards do offer rewards, they’re usually not as robust as they would be with other types of credit cards. Plus, many gas cards have a cap on how much you can earn in rewards in a given year.

Recommended: What Is the Average Credit Card Limit?

The Takeaway

A gas credit card could be a strong option if you are looking for a credit card with easier approval requirements to take a step toward building credit. Before deciding, consider the advantages and drawbacks of getting a gas card to build credit.

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

Are gas cards worth it?

Gas cards can be worth it if you are looking for a credit card with less stringent approval criteria and are trying to establish or build credit. Many don’t have annual fees, so if you’re able to pay the balance in full each month, it could be worth opening. Plus, you might be able to save at the pump.

Are gas cards good for building credit?

Gas cards can be good for building credit as they do report your activity and payment history to the credit bureaus. However, in order for them to help with your credit, you must maintain responsible credit habits, like making on-time payments and maintaining a reasonable credit utilization ratio.

Is it better to use a fuel card or a credit card?

Whether a fuel card or credit card is better depends on what you typically use your credit card for, as well as what cards you’re able to get approved for. If you would like a card that you can use only for gas and would like to rack up gas savings, then a fuel could be a good fit. Another type of credit card, such as a cash-back or travel rewards credit card, could offer you different perks. However, they might be harder to get approved for.

Do gas cards save you money?

Gas credit cards can shave a few dollars at the gas pump in the way of discounts and promotions. Some cards offer cash back rewards, usually up to a certain amount per year.

Photo credit: iStock/Talaj

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®

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Paying your cell phone bill typically does not help you build credit. That being said, there are steps you can take to have your phone bills affect your credit. For instance, paying your monthly bill with a credit card and then making on-time payments on your balance can help you build your credit score from scratch. You also could enroll in a third-party service to have your phone payment activity reported to the credit bureaus.

How Cell Phone Bill Payments Work

If you have a cell phone, each month you will likely receive a bill — either in the mail or digitally — with an amount that you have to pay for using the cell phone carrier’s service. This amount will vary depending on the type of plan you have and how many lines you have under the account, among other potential charges like device protection or insurance. If you’ve financed the cost of your physical cell phone, that amount will also get added into your monthly cell phone bill.

Recommended: What Is a Charge Card?

Will Paying Your Phone Bill Build Credit?

Unlike payments on your credit card or loans like your auto loan or mortgage, cell phone payments usually don’t get reported to the credit bureaus. As such, cell phone payments typically don’t show up on your credit report and therefore don’t impact your credit score.

The only exception to this is if you finance a cell phone and the creditor reports your payments to the three major credit bureaus. In that scenario, those payments could help build your credit.

There are also a couple of ways that you can get your phone bills to help with building credit. These include:

•   Reporting payments to the bureaus through a third party: Cell phone companies usually don’t report directly to the credit bureaus, nor can you self-report your cell phone bill payments to the bureaus. Instead, you can sign up for a third-party service that will report your payment activity to the bureaus on your behalf, so they appear on your credit report. You might owe a subscription fee for this service though.

•   Paying your cell phone bill using your credit card: By paying bills with a credit card — in this case, your cell phone bill — and then making on-time payments on your credit card balance, you can help build your credit score. Beyond serving as a credit-building tactic, using one of the different types of credit cards to cover your phone bills can offer access to added perks like cell phone protection.

Recommended: Does Applying For a Credit Card Hurt Your Credit Score?

What Happens to Your Credit Score When You Miss Phone Bill Payments?

While your phone bill payments don’t directly impact your score, should your account become delinquent, then the delinquency does get reported to the credit bureaus. At this stage, your cell phone bill can negatively impact your score.

Your cell phone account could become delinquent if you miss one or more payments in a row, or if you end your contract with your carrier earlier and fail to pay off your balance. This information can remain on your credit report for up to seven years from the date the delinquency occurred.

What Happens to Your Credit Score When You Start a New Phone Plan?

When you apply for a new phone plan, the carrier will do a hard credit pull to help them determine how likely you are to stay on top of your cell phone payments. A hard pull can negatively impact your credit score, though its effects are usually minor and short-lived.

However, your subsequent payments on your new phone plan likely will not get reported to the credit bureaus, meaning your payment activity generally won’t affect your credit.

Recommended: Effect Paying Off Debt Has on Your Credit Score

Does Buying a New Phone Affect My Credit Score?

Buying a new phone won’t impact your credit score. And should you get financing through your cell phone carrier and enter a payment plan, your payments usually don’t get reported to the credit bureaus.

One way that a new cell phone purchase can impact your credit score is if you pay for your new phone with a credit card. If you make on-time payments on your credit card balance, that could help you build your score. But on the flipside, making late payments or missing payments entirely could negatively affect your score.

Importance of Building Credit

Establishing credit and building a strong credit score can not only help you get approved for that car loan, mortgage, or credit card in the future, but it can help you land the most favorable rates and terms.

Without a good credit score, the cost of taking out a car loan or mortgage, or carrying a balance on a credit card, could be more expensive. Getting approved is also more challenging with a thin credit history or a credit score that’s not so great.

Other Ways to Build Credit

Besides reporting your cell phone bill through a third-party company or paying your cell phone bill with your credit card, here are some ways you can build your credit from scratch.

Open a Secured Credit Card

If you’re just starting out on your credit journey, consider applying for a secured card. A secured card works just like a credit card, but it requires a deposit. Your deposit serves as collateral.

Secured cards are designed for those who are building their credit and as such, generally have lower credit limits. The deposit you make is usually the same as your credit limit. For example, if you have a $250 credit limit, your deposit is also $250.

Once you demonstrate a history of on-time payments, you might graduate to a traditional credit card, which does not require a deposit as collateral and which generally offer higher credit limits. Plus, once you move up from having a fair credit score, you may have access to lucrative rewards and perks.

Get a Credit-Builder Loan

Banks, credit unions, and online financial platforms might offer credit-builder loans, which are small loans that are stowed in a savings account. Unlike with a typical loan, where you receive a lump sum upfront, you only get the loan amount once you’ve paid off the loan in full. The payments you make on a credit-builder loan are reported to the credit bureaus, which can help you build credit.

Become an Authorized User

Being added as an authorized user on someone else’s credit card means you can make purchases using their card but aren’t on the hook for payments. Instead, the authorized user, generally a family member or trusted friend, is responsible for making payments.

If the account holder maintains responsible credit card behavior, that can help you on your credit-building journey, as their activity appears on your credit report.

Use a Credit Card Responsibly

Using a credit card responsibly and making on-time payments each month can help you to build your credit score. Payment history makes up 35% of your FICO® Score, making timely payment the most influential factor among what affects your credit score. Additionally, keeping your credit card accounts open can help increase the average age of your credit accounts, another factor that influences your FICO Score.

The Takeaway

Paying your cell phone bill likely won’t help you build credit. However, there are steps you can take if you’d like your phone bills to affect your credit score. This includes using your credit card to cover your phone bill and then making on-time payments on your balance. You can also build credit with cell phone payments by getting them reported through a third-party company. No matter how you do it, building credit can be crucial, as it opens the door to future financial opportunities.

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 long does a cell phone bill stay on your credit card report?

Cell phone payments usually aren’t reported to the credit bureaus. In turn, they won’t show up on your credit card report. However, if you miss payments, the account can become delinquent. Delinquent accounts can stay on your credit report for up to seven years.

Will missed payments on my cell phone bills hurt my credit score?

Missed cell phone payments can hurt your credit score if the account falls into delinquency and gets turned over to collections. Delinquency can linger on your credit report for up to seven years.

Does upgrading my phone build my credit score?

Because your cell phone carrier generally doesn’t report to the credit bureaus, any changes to your cell phone plan, such as a phone upgrade, will not build your credit score.

Photo credit: iStock/Kanawa_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.

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®

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Both FICO® and VantageScore®, two of the most commonly used credit scoring models, set the maximum credit score at 850. A higher credit score is considered better than a low credit score, indicating that you are more likely to handle your debt responsibly.

If you are interested in achieving an 850 credit score, read on to learn more about how you might do so, as well as tips on building a credit score in general.

How Do Credit Ratings Work?

The different companies that calculate credit scores have different credit rating scales. These scales generally divide credit scores into five different categories: poor, fair, good, very good, and excellent. Each of these ranges spans a number of different credit scores, and can be a good way to understand your credit at a glance.

Here’s how the FICO Score, one of the most popular credit-scoring model, groups its credit categories:

•  300-579: Poor

•  580-669: Fair

•  670-739: Good

•  740-799: Very good

•  800-850: Exceptional or excellent

What Factors Affect Credit Scores?

Different companies use different factors (and in different proportions) when calculating credit scores, which is why you have different credit scores. Generally, the following five factors affect credit scores:

•   Payment history: This reflects whether you’re paying your bills on time.

•   Credit utilization ratio: This reflects what percent of your credit limit you are using (30% or less is a good guideline).

•   Length of credit history: This shows how long you have been managing credit (longer histories typically yield higher scores).

•   Credit mix: Credit bureaus may positively impact your score if you successfully handle different types of credit, such as installment loans and lines of credit.

•   Recent credit inquiries: Having too many credit inquiries in a short period of time can negatively affect your credit score.

How to Check Your Credit Score

While you can check your credit report for free from the major credit bureaus, your credit report usually won’t contain your actual credit score. Instead, there are a number of different ways to check your FICO Score or VantageScore or other types of credit score:

•   Through your credit company or other financial institution, such as on a loan statement

•   From one of the major credit bureaus or other providers

•   On a free credit scoring website, such as AnnualCreditReport.com, or other credit score service

Why Should You Have a High Credit Score?

Having a high credit score can have a positive impact on your overall financial situation. In fact, a good credit score is one of the most important assets you have in life. If you have a bad credit score, you may not be able to get approved for credit cards or other loans. And even if you are approved, you may have to pay higher interest rates than borrowers with better credit scores.

Tips for Trying to Achieve a Perfect Credit Score

If you’re aiming to achieve the highest possible score of 850, know this: There are diminishing returns the higher your score is. In other words, while there may be a real financial impact to building your credit score from 650 to 700, you won’t see as much of an impact by building your score from 800 to 850. Even though it’s not the highest credit score possible, a credit score of 800 is likely high enough that you stand a good shot at qualifying for most loans at the lowest available interest rate.

That said, here are a few tips if you want to try to achieve a perfect credit score.

Never Miss Payments

One of the best things you can do to positively affect your credit score is to always pay your bills on time, each and every month. Having delinquent or past-due accounts can have a major negative impact on your credit score.

Keep Your Credit Utilization Rate Low

Your credit utilization ratio is defined as the percentage of your available credit that you are actively using. So if you have a single credit card with a $10,000 limit, and you’re carrying a balance of $1,000, your credit utilization ratio is 10%.

Your credit utilization ratio is one of the largest factors that makes up your credit score. Generally aim to keep it at 30% or lower.

Avoid Applying for Credit Too Often

Another factor that makes up your credit score is how often you apply for new credit. Because of this, you’ll want to be judicious when applying for a new credit card or any other form of loan. Too many applications within a short window of time can raise a red flag for lenders.

Keep Accounts Open and Active

The length of your credit history contributes to your credit score, with a longer history being better than a short one. For this reason, keeping accounts open, even if you don’t use them often, can help you maintain or build your score. What’s more, additional credit accounts being kept open can pump up your overall credit limit, which can lower your credit utilization.

Review Your Credit Reports

It’s also a good idea to regularly review your credit reports, especially if you have a starting credit score you’re trying to build. That way, you can make sure there isn’t any inaccurate or incorrect information on your report. If you do find missing or inaccurate information, contact the credit bureau to have it corrected.

Get a Secured Credit Card

If you don’t have the minimum credit score for a credit card, you might consider applying for a secured credit card. With a secured credit card, you put down a refundable security deposit upfront, which then serves as your credit limit.

As you use your secured card responsibly, building up to a fair credit score or even a good one, you might be able to later upgrade it to an unsecured credit card.

Become an Authorized User

Another way to work towards a perfect credit score, especially if you are starting out in your credit journey, is to become an authorized user on a credit account of a trusted friend or family member. As long as your friend or family member is responsible with their credit usage, it can help build your credit score as well.

Pay Your Bills Regularly

Again, one of the best things that you can do for your credit score is to pay your bills regularly. This means setting up a budget and making sure that your income exceeds your expenses, with a little left over each month to stash in savings. That way, you can always make sure to pay your bills while having an emergency fund to cover any unexpected financial situations.

The Takeaway

There are a few different companies that generate credit scores, and the methodology that each one uses varies slightly. In the most popular credit score models, the highest credit score possible is 850. While it’s generally advisable to work toward improving your credit score, it may not be worth it to overly focus on getting a perfect credit score.

Having a very good credit score or an excellent one that is less than 850 can still qualify you for the most favorable rates on credit products, such as credit cards with robust rewards.

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 effect does an 850 credit score have?

If you have an 850 credit score, you are much more likely to get approved for any new loans or credit cards that you apply for. You’ll also likely be eligible for the lowest possible interest rates. These are a few of the reasons it’s beneficial to have as high a credit score as possible.

Which credit scores are most widely used?

Two of the most popular companies and credit scores are VantageScore and your FICO Score. However, there are several companies that have their own methodologies and credit scores. This is why you have different credit scores.

Which credit score do banks use?

Different banks, lenders, and credit card companies may use different credit scores. FICO Score is one of the most popular, but if you’re not sure which credit score your bank uses, you might be able to ask their customer service department or look for an answer online.

Photo credit: iStock/anyaberkut

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®

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If you don’t have, don’t want, or can’t qualify for a credit card, you may consider a prepaid credit card as an alternative. With a prepaid card, a certain amount of money is loaded onto the card at the time of purchase. You draw upon these funds until the money is used up. Unlike traditional credit cards, prepaid credit cards do not report transaction or payment information to the major credit bureaus. That means that prepaid credit cards will not help build credit directly.

Do Prepaid Cards Build Credit?

Having or using a prepaid credit card will not have any impact on your credit score. That’s because one of the major differences between a prepaid credit card and a traditional credit card is that prepaid credit cards do not report transactional or payment information to the major credit bureaus. As such, that activity cannot have an effect on your credit score.

Recommended: Does Applying For a Credit Card Hurt Your Credit Score?

Understanding Prepaid Credit Cards and How They Work

When you use a traditional credit card, you are borrowing money from the credit card issuer. Then, each month when the statement comes due, you make a payment toward the loan the credit card company has issued you. This payment history is reported to the major credit bureaus. Other potential lenders will review how much credit you have open and how reliably you make payments on your debt obligations to help them decide if they want to issue you additional credit.

On the other hand, a prepaid credit card does not offer access to revolving credit. With a prepaid credit card, you will first purchase the card, and the purchase amount will be loaded onto the card. Then, you can use the card at participating retailers. Each purchase that you make will get subtracted from the total value that is stored on the card. Once the total value hits $0, the card will no longer be usable unless it can be reloaded with more money.

Recommended: When Are Credit Card Payments Due?

Who Might a Prepaid Credit Card Be Suitable For?

There are certain groups of people for whom a prepaid credit card might be an ideal solution. This includes those with poor credit and those who desire the flexibility that a credit card can offer.

People With a Poor Credit Score

One group of people who might get value from a prepaid credit card are those that have a poor credit score or limited credit history. If you’re not able to qualify for a traditional credit card, or are concerned with how much a credit card costs, you might want to use a prepaid credit card for transactions where using a card is required or preferable.

People Who Want the Flexibility of a Credit Card

If you don’t have a credit card or prefer to use cash for most of your transactions, there still may be some circumstances where you might appreciate the flexibility of using a credit card. If that description fits you, you should explore the benefits and risks of prepaid credit cards, and decide if one might be right for you.

How Can a Prepaid Card Build Your Credit Rating?

Since prepaid credit cards do not report payment or transactional usage to the major credit bureaus, they won’t build your credit score directly. However, getting in the habit of using a credit card responsibly can help prepare you for when you do have a traditional credit card. Starting those habits can keep you from making some of the common credit mistakes that can harm your credit score.

When Should You Use a Prepaid Credit Card?

A prepaid credit card can be a good option for people that need or want to use a credit card but don’t have a traditional credit card. This could include when making purchases online or when making a purchase where you want to make sure there is an electronic record of the transaction.

If you are trying to get a credit card cash advance, however, you may want to consider another option. Most prepaid credit cards will not allow you to get cash back.

Secured Cards vs Prepaid Cards

There are several different types of credit cards, one of which is a secured credit card. A secured credit card is similar to a prepaid credit card in that you have to make a deposit or purchase upfront to load value onto your card.

However, a secured credit card allows you to regularly reload value onto your card. A secured credit card also reports usage information to the major credit bureaus, which can make it one way to help with establishing credit.

Alternative Ways to Help You Build Credit

Besides secured credit cards, there are a few other ways to help you build your credit. Some options include:

•   Becoming an authorized user: One path is being an authorized user on the credit card account of a trusted friend or family member, whose responsible use of credit could positively impact your score.

•   Making on-time payments on other debt obligations: Another possible way to help build your credit is reliably making payments on other types of debts, like student loans, car loans, or personal loans.

•   Getting a cosigner: If you’re hoping to get a loan or unsecured credit card to begin building your credit, one way to increase your odds of approval is by getting a cosigner. Just know that this means that person will also be on the hook for your debt if you fail to repay it, so make sure to abide by credit card rules to avoid that situation.

The Takeaway

Prepaid credit cards can be a great way to make a purchase when using cash is not an option or is less advantageous. However, it’s important to understand that prepaid credit cards do not send information about your transaction or payment history to the major credit bureaus. That means that having or using a prepaid credit card will not have any impact on your credit score. If you want a credit card that reports transactions to the major credit bureau, you’ll need to have a more traditional type of 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.

While SoFi does not offer prepaid credit cards, we do offer traditional credit cards.

FAQ

What challenges are involved in having prepaid credit cards?

One challenge is that any transactions or payment history associated with a prepaid credit card are not reported to the major credit bureaus. That means that using a prepaid credit card will not help you build your credit. There also may be some types of credit transactions where the merchant will not accept a prepaid credit card.

Can prepaid cards be run as credit?

In some ways, prepaid cards work just like traditional credit cards. This means that typically, a prepaid card can be run as credit when making a purchase. Additionally, depending on the merchant and the type of prepaid card you have, you may be able to set up a PIN and use your prepaid credit card as a debit card. But prepaid cards do not report activity to the credit bureaus, so responsible use won’t build your credit.

Do prepaid cards damage credit?

Prepaid credit cards do not report any type of purchase or payment history to the major credit bureaus. So while this means prepaid credit cards can’t help build credit, they also will not damage it.

Do prepaid cards report to credit bureaus?

No, prepaid cards do not report to the major credit bureaus. Any purchases that you make on a prepaid credit card will not have any impact on your credit score, either positive or negative. So if you are working on establishing credit, you will need to use a traditional credit card or another type of financial instrument that reports usage to the major credit bureaus.

Photo credit: iStock/Visiondreams

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 .

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In many cases, a secured credit card can be a good way to establish and build credit. However, if you’re planning to get a secured credit card to build credit, what’s critical to determine is whether the issuer reports usage to the major credit bureaus.

Many issuers do, but some may not. If your issuer does not report information to the credit bureaus, then a secured credit card won’t help build your credit. But if the issuer does, then that secured credit card could be a good starting point for your credit-building journey.

What Is a Secured Credit Card and How Does It Work?

There are two different kinds of credit cards: secured credit cards and unsecured credit cards.

•   An unsecured credit card is what most people think of when they think of a traditional credit card. In many ways, a secured credit card operates in much the same way, with the bank extending a specific amount of credit that you can use throughout the month and that you won’t have to pay until your statement closes at the end of the month.

•   There is one major difference between a secured credit card and an unsecured credit card. With a secured credit card, you have to put down a security deposit. The amount of this deposit is usually what then serves as your credit limit.

   This money that you put down also acts as collateral. If you fail to pay the amount borrowed, the lender can take that deposit to help cover its losses. This added protection for the lender is why a secured credit card is generally easier to qualify for if you have a thin credit history.

   If you use your credit card responsibly, you’ll get your deposit back in full when you close your account or get upgraded to an unsecured credit card.

Can You Build Credit with a Secured Credit Card?

It is possible to build credit with a secured credit card — as long as your issuer reports usage and payment activity to the major credit bureaus.

If that information is reported, then you could build credit with a secured credit card, assuming you use your account responsibly. For instance, if you routinely make on-time payments, that could make a positive impact on your score, since payment history is one of the key factors that determines your credit score. It’s a key way in which you can show you are using a credit card responsibly.

Tips for Building Credit with a Secured Credit Card

Here are a few tips for establishing credit by using a secured credit card:

Make Sure Your Issuer Reports to the Credit Bureaus

If the issuer of your secured credit card does not report to the major credit bureaus, it is not likely to have an impact on your credit history or score. When looking at and applying for a secured credit card, make sure that it will report usage and payment history to the credit bureaus.

Recommended: Does Applying For a Credit Card Hurt Your Credit Score?

Pay Your Statement Balance On Time and In Full

Your overall payment history is an important factor in determining your credit score. Make sure to pay your secured credit card bill on time, each and every month. You should also not spend more money on your card than you have, so that you can pay your statement balance off in full when it comes due.

Avoid Maxing Out Your Card

Another factor that makes up your credit score is your credit utilization ratio, which is defined as your total balance divided by your total available credit limit. It’s generally recommended to keep this ratio at 30% or lower, if possible. In order to avoid negative effects to your credit score, you’ll want to steer clear of maxing out your card, even if that money is technically available to you.

Recommended: What is the Average Credit Card Limit?

Other Ways You Can Use Credit Cards to Build Credit

Besides using a secured credit card, here are a few other tips for building credit with a credit card:

•   Increase your credit limit when possible. Again, this can lower your credit utilization rate, which is a major factor in determining your score.

•   Set up automatic payments. This way, you never make a late payment. Payment history has the biggest impact on your credit score.

•   Use your credit card regularly. While it might seem safest to keep your credit card tucked away unused, it’s necessary to use it to demonstrate to lenders that you can responsibly repay your debts. Just make sure not to spend more than you can afford to pay off in full.

•   Limit new credit applications. While it might feel tempting to try to get better cards as your credit starts to get established, keep new credit applications to a minimum. Each application results in a hard inquiry, which temporarily lowers your score. Too many applications within a short window of time can also raise a red flag for lenders.

•   Monitor your credit report. Even if everything seems like it’s smooth sailing with your credit, it’s smart to monitor your credit report regularly. Review your credit report for any errors or any potential signs of fraud.

The Takeaway

If you’re not sure whether you’ll get approved for an unsecured credit card, you might consider a secured credit card instead. With a secured credit card, you put down a refundable security deposit upfront, which serves as your total available credit. Because of this deposit which reduces risk, lenders may be more likely to approve you. If you are approved, using a secured credit card can help you build credit — as long as your issuer reports usage to the major credit bureaus and you use your card 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

How much will a secured credit card help my credit score?

There isn’t a specific formula to determine how much a secured credit card can help your credit score. Instead, you should focus on making and strengthening good financial habits like living within your means and paying off your credit card in full, each and every month. A secured credit card can be one way to help your credit score in this manner.

What is the best secured credit card to build credit?

The best secured credit card will vary depending on your specific financial situation. You’ll want to look for a secured card that reports to the major credit bureaus, charges low or no fees, and has a low interest rate. There are secured credit cards that offer a limited rewards program as well, which can make for a nice perk in addition to building your credit.

Can you get a secured credit card with a bad credit score?

Yes, it is possible to get a secured credit card with a bad credit score. Because you are putting down the initial security deposit, lenders may consider you as less of a risk than someone applying for an unsecured credit card. Therefore, you may have greater odds of approval when applying for a secured credit card.

Photo credit: iStock/Delmaine Donson

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®

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