Do Gas Cards Actually Help Build Credit?

This article explores how gas cards can impact credit. It clarifies the types of gas cards and their effects on credit reporting, providing a clear perspective on their potential to contribute to a healthy financial profile.

Types of Gas Cards

Gas cards generally fall into two main categories, each with distinct implications for credit building. Store-specific gas cards, often called closed-loop cards, are issued directly by a gas station brand and can only be used at that brand’s locations. These cards often have less stringent approval requirements, making them accessible to individuals with limited credit history. However, a significant limitation is that they may not report account activity to all major credit bureaus (Experian, Equifax, or TransUnion). If reporting doesn’t occur, their use won’t contribute to a credit file.

Conversely, co-branded gas cards operate as open-loop credit cards, issued by a major financial institution in partnership with a gas station brand. These cards carry a network logo, such as Visa or Mastercard, allowing them to be accepted wherever those major credit cards are processed, not just at the affiliated gas station. Unlike store-specific cards, co-branded gas cards consistently report account activity to the major credit bureaus, enabling them to influence a cardholder’s credit score.

How Credit is Built

Credit is established and improved through consistent reporting of financial activities to the three major credit bureaus: Experian, Equifax, and TransUnion. These bureaus collect data on borrowing and repayment behaviors, used to generate a credit report and a numerical credit score. A credit score, typically ranging from 300 to 850, provides lenders with a quick assessment of a borrower’s creditworthiness. Higher scores generally indicate lower risk and can lead to more favorable loan terms and interest rates.

Several factors collectively determine an individual’s credit score. Payment history holds the most weight, accounting for approximately 35% of the score, emphasizing the importance of making all payments on time. Credit utilization, representing about 30% of the score, measures the amount of credit used relative to the total available credit, with lower utilization ratios being more beneficial. The length of credit history, contributing around 15%, considers the age of the oldest account and the average age of all accounts.

The types of credit used, such as revolving credit like credit cards and installment loans, also play a role, making up about 10% of the score. This factor reflects a healthy mix of credit accounts. New credit, which accounts for approximately 10% of the score, considers recent applications and newly opened accounts. Each inquiry can cause a small, temporary dip in the score, highlighting the need to apply for new credit judiciously.

Gas Cards and Credit Building

Only co-branded, open-loop gas cards can assist in building credit. Because these cards are issued by major financial institutions and operate within established credit card networks, their usage and payment history are routinely reported to the major credit bureaus. This consistent reporting allows responsible account management to positively impact a cardholder’s credit file and score.

Conversely, store-specific, closed-loop gas cards typically do not contribute to credit building. Many issuers of these cards do not report account activity to the major credit bureaus, or they may only report negative information, such as defaults or late payments. Without regular positive reporting, even perfect payment behavior on a closed-loop card will not help establish or improve a credit score. Individuals seeking to build credit should obtain a co-branded option that actively reports to the credit bureaus.

For a co-branded gas card to be an effective tool for credit building, the cardholder must adhere to responsible credit use. This includes consistently making payments on time, ideally paying the full statement balance each month. Keeping credit utilization low, typically below 30% of the available credit limit, is also important to avoid negatively affecting the credit score. Managing a co-branded gas card responsibly demonstrates sound financial habits and enhances a credit profile.

Strategies for Building Credit with Gas Cards

Utilizing a co-branded gas card effectively is a straightforward strategy for credit building. The primary action is to ensure all payments are made on or before the due date each month. Consistent on-time payments are the most influential factor in a credit score, demonstrating reliability to potential lenders. Even making only the minimum payment by the due date will prevent late payment marks, though paying the full balance is recommended to avoid interest charges and improve credit utilization.

Another important strategy involves maintaining a low credit utilization ratio. This means keeping the outstanding balance on the gas card well below the assigned credit limit. For instance, if a card has a $500 limit, aiming to keep the balance below $150 would be beneficial. Using the card for regular fuel purchases, which are often small, manageable amounts, and then paying off the balance quickly, helps maintain low utilization. This approach signals responsible credit management to credit bureaus.

Regularly reviewing credit reports is also a proactive step that can support credit building with a gas card. Individuals are entitled to a free copy of their credit report from each of the three major credit bureaus annually. Checking these reports allows cardholders to identify any inaccuracies or fraudulent activity that could negatively impact their credit score. Promptly disputing any errors ensures that the credit history reported is accurate and reflective of actual financial behavior.