With the price of gas these days, it is understandable to constantly seek out ways to save on gas. You have probably heard that one of the best ways to save on gas is to apply for a credit card that offers gas incentives and cash-back rewards. Using one of these cards exclusively to pay for gas can add up to a 5% discount on all gas purchases. Rewards credit cards also often offer cash-back for car maintenance and auto purchases. Keeping your vehicle in prime working condition can lead to better gas mileage.
If you have decided to start looking for a gas credit card, you may be wondering how your credit score is going to affect the kinds of rewards you can get. This is a legitimate concern, since your credit score will definitely affect how much you save.
The biggest thing your credit score is going to affect is the interest rate. Unless you plan to pay off your credit card balance every single month, a high interest rate could negate your savings. Most credit cards offer a low percentage of cash-back, usually 3% or 5%. So, depending on the incentive percentage and the amount you spend on gas, you will save anywhere from $5 to $15 on gas every month.
If you do not pay off your balance, the card will accumulate more interest than you will earn in cash, since most interest rates are significantly higher than 3% or 5%. Consider the following scenario. Your credit card has an interest rate of 10% that accumulates monthly. You earn 5% back in cash every time you use your credit card to purchase gas. So if you spend $200 on gas in one month, but you only pay off $50 (leaving you with a balance of $150), you will earn $10 in cash. Because you have a balance of $150, your credit card will accumulate $15 in interest. In this case, you will end up spending $5 more with the credit card.
For this reason, having a high credit score is extremely beneficial. Your interest rate will be very low, so it will matter less if you cannot afford to totally pay off the credit card one month. Having a great credit score can also affect whether or not you are required to pay an annual fee. Annual fees can also make the difference of whether or not paying for gas with a credit card is worth it.
Consider a scenario similar to the previous one. You spend $200 on gas each month, earning 5% cash-back for gas expenses, but this time, you always pay off the balance. Additionally, you are required to pay an annual fee of $35. This means that throughout the year, you will earn $120 in cash-back. Your gas savings are reduced to $85 for an entire year due to the annual fee.
If you have a mediocre or low credit score, it could still be worthwhile to use a credit card exclusively for gas. In order to save money, however, it is vital that you pay off the balance each month and that the annual fee is lower than the total amount you will save on gas throughout the year. Compare credit cards on Moneysupermarket.com so that you can find an offer that will save you money on gas.
