Do Cashback Cards Hurt Your Credit?
Earning cash back rewards on your credit card spending is a nice perk. But some people worry opening cashback cards and using credit could hurt their credit scores.
In this comprehensive guide, we’ll look at how cashback cards impact your credit based on responsible usage and payment history. We’ll also explore whether rewards cards have any downsides along with tips to minimize risks.
How Cashback Credit Cards Work
With cashback credit cards, you earn a percentage of money back on the total purchases made during each billing cycle. Common rewards rates include:
- 1% – 2% cashback on all purchases
- 3% – 6% cashback on select bonus categories
- Up to 10% cashback on special intro offers
As long as you pay on time, the cashback rewards accumulate for redemption when minimums are met. Carrying a balance does not impact rewards earned.
Now let’s look at how these cards specifically impact your credit.
Do Cashback Cards Help or Hurt Your Credit Scores?
Responsibly using cashback cards and maintaining on-time payments can positively influence your credit:
Increased total available credit – Higher credit limits raise your total borrowing power which helps scores.
Credit mix diversification – Having both revolving (cards) and installment (loans) credit improves credit mix.
On-time payment history – Making at least the minimum payment by the due date avoids late fees and hits.
Lower credit utilization – Keeping balances low relative to limits demonstrates good management.
Increased length of credit history – Longer opened accounts strengthen your history depth.
New credit inquiries – Applications require hard credit pulls which create minor dings. But impacts fade quickly.
The most important factor is never missing payments according to your card agreements. Avoiding late fees protects your history. Cashback cards only help strengthen your credit health with responsible use.
Do Cashback Cards Encourage Overspending?
Some consumers worry rewards cards encourage overspending just to earn more cashback. A few habits can lead to overspending:
- Putting unnecessary purchases on the card
- Spending beyond your budget to hit bonus caps
- Not paying your bill in full each month
- Signing up for cards you won’t use responsibly
- Opening too many new accounts quickly
The key is using cashback cards strictly for planned purchases within your budget. Don’t spend just to earn – let rewards accumulate naturally on existing expenses.
Pay off balances each month and only open accounts as needed based on your finances and earning opportunities. Used wisely, cashback cards don’t promote wasteful spending.
Tips to Avoid Cashback Cards Impacting Your Credit
If you’re concerned about impacts on your credit, here are some tips:
- Review monthly statements to ensure on-time payments
- Set payment reminders and enroll in autopay
- Never miss a payment to avoid hurting your history
- Keep credit utilization below 30% across all cards
- Initiate balance transfers to keep balances affordable
- Consolidate high-rate debts onto lower APR cards
- Avoid cash advances which accrue interest immediately
- Only open new cards as needed to minimize inquiries
- Check your credit reports routinely to catch any reporting issues
- Contact issuers if you experience financial hardship for help
Monitor your credit routinely via free services like Credit Karma. This helps you stay aware of any changes.
Do Premium Travel Cards Hurt Your Credit More?
Some top-tier travel rewards cards that offer airport lounge access, annual travel credits, and other premium perks do often have higher annual fees compared to basic cashback cards.
For example, the Chase Sapphire Reserve card has a $550 annual fee. But it also comes with a $300 annual travel credit along with airport lounge benefits. As long as you use the card benefits, the net cost is just $250 per year.
The key is making sure your budget allows you to comfortably afford any annual fees without creating a monthly burden. As long as you pay on time and keep utilization low, having premium cards won’t hurt your credit any more than standard cashback cards.
Common Concerns About Cashback Cards and Credit
Here are answers to some frequently asked questions:
Will opening several new cards hurt my credit? Yes, applying for too many new accounts in a short period can temporarily impact your credit scores. Spread applications out over a longer timeframe.
What’s the best way to avoid interest charges? Pay off your balance in full each month. For large purchases, consider cards with 0% intro APR offers which allow paying over time without interest.
Is there a risk of overspending just to earn rewards? Yes, overspending purely to earn points or maximize bonuses can lead to taking on debt and overextending your finances. Only spend within your budget.
Should I avoid cards with annual fees if I’m rebuilding credit? Generally opt for no-annual-fee cards when first establishing or rebuilding credit. Upgrade after your scores increase.
How many cards can I have without hurting my credit? There’s no strict limit, but aim for 2-4 total cards open simultaneously. Manage utilization carefully as you add more available credit.
What’s the ideal credit card utilization?
Experts recommend keeping your revolving utilization (balances divided by limits) below 30% across all cards. Below 10% is ideal.
The Bottom Line
Cashback credit cards don’t hurt your credit. Missed payments, high balances, and irresponsible use of credit hurt your credit – regardless of whether a card earns rewards. Maintain good habits and cashback cards can actually help build your credit strengths over time.
Monitor your credit routinely and practice sound financial habits like paying bills on time, not overspending, and keeping account diversity. With responsible usage, cashback cards provide upside through rewards earnings without any downside credit risk.