Love to travel? Good news: There are ways to put that wanderlust to use with a travel rewards credit card.
Though travel rewards cards aren’t the easiest to get approved for as they require an excellent or good credit score, those who are able to snag one can use it to build better credit. (Just, remember, before you apply, it’s important to know where you stand so you don’t get turned down and have your score suffer as a result of the inquiry.)
Travel Rewards Cards & Credit
A travel rewards credit card lets accountholders earn points or miles that can be put towards hotel stays, airfare and other travel expenses. These rewards can help world travelers lower the cost of their vacations, but the card itself could be a good instrument for building credit.
If you make all of your payments on time, eventually your score will begin to rise because this behavior creates a positive payment history, the most important factor among credit scoring models. The card’s credit limit will also be counted towards your credit utilization rate, another major factor among credit scores. Your credit utilization rate is essentially how much debt you are carrying versus your total available credit. For best credit scoring results, it’s generally recommended to keep the amount of debt you owe below ideally 10% and at least 30% of your credit limit(s). So, if you charge your vacation and then pay most or, even better, all of those purchases off right away, your score could benefit.
While using your card, you can keep track of how your usage and payments are affecting your credit by signing up for Credit.com’s free credit report summary. Beyond seeing your credit scores, you’ll be able to check how you’re doing in five key areas of your credit report that determine your credit score, including payment history, debt usage, inquiries, credit age and account mix.
Since interest rates for travel rewards cards tend to vary depending on creditworthiness, you’ll want to be mindful about carrying a balance. Doing so could hamper your credit goals, and the interest you pay could exceed whatever you’ve managed to glean from rewards. Many travel rewards cards carry annual fees, too, so you’ll want to make sure your spending habits justify that potential cost. (You can read about the best travel credit cards in America here.) Of course, making purchases on your card and paying them off quickly (and on time) will generally boost your credit.
Remember, too, if your credit is looking a little lackluster and you’re having a hard time qualifying for any type of credit card, you may be able to improve your scores by disputing errors on your credit report, paying down high credit card balances and limiting new credit inquiries until your score rebounds.
More on Credit Cards:
- Credit.com’s Expert Credit Card Shopping Tips
- How to Get a Credit Card With Bad Credit
- An Expert Guide to Credit Cards With Rewards