It’s quite possibly one of the most frustrating financial dilemmas that just about every young adult goes through: In order to build credit, you need a credit card, but in order to get a card, you need credit. Who came up with this system?
There’s plenty of advice out there about getting around this issue, like having your parents co-sign on a small loan for you or add you to their credit cards as an authorized user. Those strategies work just fine, too, but what if you don’t have such generous parents or simply don’t want to rely on them for yet another favor? The answer to your problem may be a gas card.
How Gas Cards Differ from Traditional Credit Cards
Gas cards, as you may have guessed, are credit cards offered by gas companies. Somewhat of a dying breed, they’re not the co-branded gas rewards cards offered by major creditors like Visa or MasterCard. Rather, a gas card is similar to a retail store card and can only be used to make purchases at the establishment that offers it.
When it comes to applying for a gas card, it’s often easier to get one than a traditional credit card. The credit limit on a gas card is usually pretty low, so the qualifications for obtaining one are not as strict.
Plus, these days, just about everyone drives. A gas card allows you to make the purchases you would anyway while simultaneously building good credit. Then, when you’ve established a good credit score, you can go out and apply for “real” credit cards knowing your credit won’t take a hit from a string of rejections.
The Downside to Gas Station Retail Cards
The biggest roadblock in using a gas card to build credit is that you still have to qualify for one just like any other line of credit. Though the qualifications aren’t as tough, it’s quite possible you could be rejected for a gas card as well and be stuck at square one.
Gas cards also carry higher-than-average interest rates. It doesn’t matter much if you’re responsible and pay your balance in full every month, which is also how you go about establishing good credit anyway. However, carrying a balance makes a high-priced purchase like gasoline all the more expensive when you add interest charges on top.
Back in the day (like three or four years ago), 18-year-olds fresh out of high school used to be bombarded with credit card offers in the mail. Unfortunately for those who now really need a credit card, irresponsible lending practices resulted in the federal government stepping in and tightening standards quite a bit, which is why it’s so hard to secure your own line of credit these days when your credit history is short or non-existent.
It won’t be like this forever, though. Creditors are already loosening up a bit and becoming slightly more generous, so getting your hands on a credit card may not be so difficult down the road. In the meantime, a gas card could help you get started on your way to building a credit history. If not, well, maybe it’s time to call Mom and Dad for a little help.
This guest post was written by Casey Bond from Go Banking Rates, a website that brings you informative personal finance content and helpful tools, as well as the best interest rates on financial services nationwide. Follow them on Twitter at @GoBankingRates.