It may seem like each time you make a purchase in a store the associate asks if you’ve heard about the plethora of benefits that come with having a store credit card... all wrapped up with a promise that you’ll save big on your next purchase if you apply for one at the register! But before you apply, you know if it will benefit or harm your credit.
Understanding and choosing the best credit card can be overwhelming, but it can also be exciting to compare rates, terms and reward programs that align with your needs. It’s also important to understand how your credit cards impact your credit score.
What is a Credit Score?
A credit score is a number between 300–850 that showcases your credit worthiness. The FICO score (a general-purpose credit score developed by the Fair Isaac Corporation) is used most often by lenders and creditors to determine how likely it will be that you repay your loan. FICO scores range as follows:
800 to 850 – Exceptional
740 to 799 – Very Good
670 to 739 – Good
580 to 669 – Fair
<580 – Poor
Scores measure how long you've had credit, how much credit you have, how much of your available credit is being used, and if you've paid bills on time. Typically, the higher your score, the more lenders are likely to lend to you. The average FICO score in America is 711.
Why is a Credit Score Important?
Your credit score is your reputation in the financial world and helps lenders make quick decisions about who they will lend money. A good-to-excellent score (670-850) demonstrates your creditworthiness to lenders. In turn, with a good credit score, you can expect to get the most favorable terms and qualify for the best interest rates. At Lakeland Bank, we offer customers the ability to check their score daily using Credit Sense – it’s a great tool to help you monitor your creditworthiness.
How Can Your Score Be Improved?
Does your credit score have room for improvement? If you find yourself with a credit score that is lower than what is considered “good”, here are some best practices to help you boost it up to a higher score:
- Pay your bills on time
- Pay off your debt and keep credit card balances low
- Apply for or open new credit accounts only as needed
- Check your credit reports annually and dispute inaccuracies
Tip: Read our Your Credit Score: How to Build, Maintain and Improve It Now blog to learn more.
How Can Your Score Be Decreased?
Keeping track of your spending habits and credit card use - even if you have what is considered to be “good credit” - is important. Some things to recognize that may lower your credit score:
- Late and missed payments
- Maxing out a credit card
- Applying for multiple or “too many” credit cards
Choosing the Right Credit Card
Credit cards are a great tool for unplanned purchases and emergencies as they allow you to tap into your “credit line”. A credit line is an approved sum of money that a lender gives you to use at any point of time. This line is capped for what is known as a “credit limit” which is the maximum amount you are approved for. Credit line limits vary by cardholder. Increases can be requested by the cardholder at certain periods of time or even decreased if you have too much of a line of credit.
Store Credit Cards vs Bank-Issued Credit Cards
Choosing the right credit card depends on what you want and need. Cards are available with no annual fees and higher cash back, while others allow you to earn points that can be redeemed for airline miles, hotel room stays, etc.
Store Credit Cards
Many retailers offer store credit cards to help lure in customers and entice them to spend money in their stores. If you are someone who frequents a specific store this could be a valuable option. It’s also a good opportunity to build credit when you demonstrate responsible card use. However, while the added benefit of earning store points and receiving discounts is alluring, individual store cards are usually restrictive. Many store cards are designed exclusively for online, or in-store-use only for that one specific company or their approved partners and cannot be used elsewhere.
Bank-Issued Credit Cards
If you want the ability to spend at a wide array of establishments, a bank-issued credit card may serve you better. It’s convenient, can be used broadly online and on-site, and increase your purchasing power. One major benefit to bank-issued credit cards is the protection they offer – both to help cover the cost of your purchase if you buy an item that is faulty or damaged, and against credit card fraud. At Lakeland Bank, falling victim to the impacts of fraudulent activity can be avoided with our Zero Fraud Liability. You won’t be liable for fraudulent purchases when your card is lost or stolen.
Great Savings on Initial Purchases
Cash back bonuses and rewards are common incentives offered when applying for and opening a new credit card. They provide a simple way to earn rebates on your spending. There are many great deals that can be found, however they’re best reserved for large purchases and you should always examine the risk factors behind them. In other words, don’t use your credit card to buy stuff you can’t afford.
The Cost of Adding on Another Credit Card
Promises of higher cash back rewards and a better interest rate can be temptations that are hard to resist, but obtaining a new credit line for the sole purpose of short-term incentives can hurt you in the long run and negatively impact your credit score.
Reward programs are great additions to opening a credit card. As we know, these rewards can come in the form of cash back, discounts on gas station purchases, travel miles, and more. If used correctly, people can use reward programs to maximize their savings and earn points. Credit card companies use the point system frequently. Points are accumulated with each purchase made with a credit card and for a certain amount of points accumulated, rewards such as gift cards, vacation packages and other incentives can be redeemed in exchange.
As good as these reward programs can look on the surface, they can be tricky. Make sure you fully understand the terms and conditions of your credit card and the potential penalties that can accumulate for late and missed payments. If you’re not responsible, the risks may outweigh the incentives, and debt may begin to pile up.
No-Interest Introductory Offers
A no-interest credit card can help you save money by allowing you to skip interest charges for the duration of the promotional period. A card with no interest is good for balance transfers from another card or to help you pay off large expenses. While no interest-based purchases can be beneficial, you should keep in mind the no interest fee only lasts for a limited amount of time and you should read the terms and conditions carefully.
It’s important to do your research and evaluate your options before signing up for a new credit card. Choosing the right credit card is easier than ever with Lakeland Bank. Explore our competitive rates and full range of reward options. Whether you want to pay down balances faster, maximize cash back, earn rewards or begin building your credit history, we have the card for you!
To learn more about credit and debit, read Understanding Good vs. Bad Debt.