Do rewards cards build credit?

Do Rewards Cards Build Credit?

Rewards credit cards, similar to traditional credit cards, can have an impact on your credit score. Understanding how they work is crucial for building a positive credit history.

Key Factors in Credit Building

Two primary factors contribute to credit building:

• On-Time Payments: Consistent and timely payments of your credit card bill are essential for maintaining a high credit score. Rewards cards require monthly payments just like any other credit card.
• Responsible Credit Utilization: Credit utilization refers to the amount of credit you are using relative to your available credit limit. Keeping your credit utilization below 30% is generally considered healthy. Rewards cards can help you manage this by providing additional credit limits.

Influence of Rewards Cards on Credit Score

Rewards cards can contribute to credit building if used responsibly:

• Positive Payment History: As with any credit card, rewards cards allow you to establish a positive payment history if you make payments on time.
• Managing Credit Utilization: Rewards cards typically offer higher credit limits than regular credit cards. This can help you keep your credit utilization low if you use the card wisely.

However, it’s important to note that rewards cards can also have negative consequences if not used prudently:

• Potential for Overspending: Rewards can be tempting, but it’s crucial to avoid overspending or accumulating unnecessary debt. Excess debt can damage your credit score.
• Annual Fees: Some rewards cards have annual fees, which can offset the benefits of the card if not used frequently.

Conclusion

Rewards cards can be a valuable tool for building credit if used responsibly. By making timely payments, maintaining a low credit utilization ratio, and avoiding overspending, you can leverage the benefits of rewards cards to boost your credit score. However, it’s essential to use these cards wisely to avoid any potential negative consequences.