If you have poor or no credit but still want a credit card that earns you solid rewards on gas spending, your options will likely be limited to a bad-credit credit card or a gas station card.
While these cards tend to offer fewer rewards, higher interest rates, and annual fees than traditional cards do, they may still be a wise choice, as they can help you rebuild your credit while earning some cash back on fuel purchases.
What is a gas rewards credit card?
A gas credit card rewards you for every purchase you make at the pump. For example, a company may offer a 2% cash-back bonus every time you swipe the card to pay for gas, so by spending $200 a month at the pump, your savings would equal $4. If you commute for work or travel a lot, a gas rewards card can make a whole lot of sense.
A gas credit card from an actual gas station is a little different. BP, Exxon and Shell all offer their own gas cards, but to get rewards, you are limited to using the cards at their stations. In addition, the interest rate charged on these cards tends to be higher than for regular credit cards, and you can often get the same rewards or better with more flexibility by using a regular gas credit card.
Choosing a gas credit card for bad credit
You have to be careful when looking at gas credit cards’ annual percentage rate (APR).
For example, say a card comes with unlimited 1% cash back gas rewards and no limit to the rewards you can earn, and you can qualify with limited or bad credit. However, the card also comes with a $99 annual fee and an APR between 17.9% and 23.9%, depending on your creditworthiness.
In this case, getting the card might only make sense if you expect to spend enough on gas to outweigh the annual fee. For this to happen, you’d have to spend a whopping $10,000 a year on gas ($100 in rewards at 1%). In addition, you really can’t carry a balance on the card, as the interest costs would outweigh any of the rewards you receive.
Another thing to keep in mind: Some gas stations charge more if you use a credit card instead of cash at the pump. Even if the difference is a mere five cents per gallon, the additional cost will likely still outweigh any rewards you receive from you gas credit card. So try to fill up at a station that offers gas for the same price, cash or credit, as long as it’s a reasonable price compared to other stations.
Why a bad-credit credit card can make sense
If you have poor credit or no credit history at all, it may still be worth signing up for a gas credit card for poor credit, even if the card comes with high interest costs and fees.
By signing up for such a card, using it and paying it off on time each month and maintaining a low balance on the card, you can improve your FICO credit score, since your payment history is sent to the major credit bureaus.
Credit cards also come with numerous fraud and security features that debit cards don’t offer, which makes them safer to use at the pump. For example, credit cards offer zero fraud liability for unauthorized transactions, which means you won’t be held responsible for any unauthorized or fraudulent transactions.
Finally, keep in mind that you only get charged interest on your card if you carry a balance. So the 20% APR you read about will actually be 0% if you pay off your balance in full each month.
Bad-credit credit cards hurt you if you carry a high balance, but you can avoid paying any interest and improve your FICO credit score by paying off the balance in full each month, while also earning some decent rewards for your gas spending.
Gas pump image via Shutterstock.