Really? Save Money and Improve My Credit Score Using Store Credit Cards?

Everyone knows that store credit cards have a great rewards system, but not many are aware of how using them responsibly can help you to save even more money. That might seem preposterous considering the interests rates attached to them, but responsible spending and timely payments can help you to avoid incurring any interest charges at all.

Store credit card holders save lots of cash by taking advantage of the discounts and special sales days that their issuer offers them. They save money on their purchases, often get free shipping for the items they buy, and frequently receive cash bonuses for just signing up. If you strategize your applications and spending you can consistently raise your credit score, which can save you even more cash. To understand how that works you need to know a bit about how a credit score is calculated, so, let me briefly explain.

How Raising Your Credit Score Can Save You Cash

One third of your credit score is calculated according to your payment history. In other words, if you have consistently paid your bills and made your loan and credit card payments on time throughout the course of your life, you will most likely have a higher than average credit score. On the other hand, if you have regularly missed paying bills, or made late payments to credit cards and loans, your credit score will most likely be on the low side.

The key to using a store credit card to raise your credit score is to charge only small amounts every month and pay your balance off in full before the grace period expires. This will save you money in several ways. First, you will not be subjected to any interest payments, as interest is only charged to your balance. A zero balance equals zero interest charges. Secondly, you will not have to pay any late fees or penalties. Thirdly, and this could save you tens of thousands of dollars in the future, it will help to raise your credit score. A word of warning however – don’t apply for too many credit cards at once, as this will affect your credit score negatively.

People with higher credit scores receive lower interest rates when applying for loans, and get a better APR on their credit cards. Because they are not considered as high a risk as consumers with low credit scores, lenders are more eager to attract their business, and consequently make it less expensive for them to pay borrowed money back. Imagine the savings over the course of a 30 year mortgage just by receiving an interest rate of one percentage point less.

The key to saving money by using a store credit card, or any credit card for that matter, is responsible and clever spending and payment. Charge little; pay a lot, and your credit score will increase consistently over a relatively short period of time. If you plan to apply for a loan at some point in the future, you should acquire a credit card and begin using it as soon as possible to develop your credit history.

If you follow the above strategy for several years, by the time you apply for your loan or mortgage, not only will lenders say yes, but they will thank you for your business by giving you a better rate.

 

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Category: Credit Score