As you establish your credit history, many tools could help you, including credit cards from retailers and gas stations you use frequently. These could be an excellent way to establish your credit history over time if you use them minimally and make timely payments. Here is what you need to know about retail and gas credit cards before you apply.

What Are Retail and Gas Credit Cards?

A store credit card, or retail credit card, is provided by a lender working with a specific retailer. These are credit cards, not loyalty cards, which means they charge you interest. Loyalty cards offer rewards or discounts for making purchases, while credit cards allow you to borrow money to make purchases and charge you interest on the balance you carry.

Gas station credit cards are the same, branded by the gas station brand or the brand of gas stations. You can often use these cards at just those locations. However, some have more flexibility in where you can use them.

• A closed-loop retail card allows you to use it only at the retailer listed or their affiliated brands and locations.
• An open-loop retail card can be used at their site and elsewhere if affiliated with American Express, Visa, or Mastercard.

How Do They Work?

Gas stations or retailers issue gas and retail credit cards to incentivize customers to shop at their stores. For instance, if your favorite clothing store offers a credit card, you may be more likely to shop there and use that credit than to go to their competitors.

Closed-loop retail cards can benefit you if you shop at that location and qualify for the loan. However, it's essential to understand the terms and conditions of these loans, as some may have high-interest rates and fees.

If you have a poor credit score, retail and gas credit cards may be easier to obtain than traditional ones because these cards usually have lower credit limits, which poses less risk to the lender.

How Are They Different from Traditional Credit Cards?

There are a few differences between traditional credit cards and store credit cards like these:

• Many store credit cards can only be used at their corresponding location.
• Some have interest rates higher than what you expect to pay for a similar card from a non-store credit card.
• Many have lower credit score requirements. That means they may be a good stepping stone to help you build credit over time.

Benefits

As you consider the options in gas credit cards and store cards, check out the benefits that some offer:

• They report to the credit bureaus. That helps you build credit history over time, especially if you make payments on time consistently.
• It is often easier to obtain these credit cards than larger unsecured ones. That could help you get one if you do not qualify.
• Some store cards offer customers annual discounts using branded credit cards. That could lower your costs if you typically purchase from these organizations. You may earn points, discounts, or other rewards.

Drawbacks

While they have some excellent benefits to offer consumers, there are a few drawbacks to using gas and store credit cards.

• Interest rates tend to be higher, and sometimes much higher, than you could expect to pay for other credit cards.
• Most will have a small credit limit, especially if you do not have a strong credit history yet.
• You are sometimes restricted from using them at those locations. That could be limiting to you if you don't shop there often.

Tips for Using Retail and Gas Credit Responsibly

If you plan to use these credit cards, keep these tips in mind:

• Make sure you shop around, select just those locations with the best terms and conditions, and understand the fees of all loans offered to you.
• Make payments on time. This is going to help you to build your credit score over time and help you qualify for more affordable loans later. Be sure to keep these credit card balances as low as possible, too.
• Choose those that fit your lifestyle and offer something back in return, such as a gas station credit card for the location you frequently visit, which could provide a points system to save on gas costs. Then, pay off the balance in full each month to lower or eliminate interest payments.

Alternatives to Retail and Gas Credit Cards

There are other options instead of credit cards for retailers or gas stations. If you have some credit history, consider an unsecured credit card designed for those with no or low credit.

Unsecured credit cards designed for those with no or low credit may have higher interest rates and fees than traditional ones. However, they may still be more affordable than some store credit cards. A secured credit card requires you to deposit as collateral; your credit limit typically equals your deposit.

Some people may also benefit from using a secured credit card for a short time until they can establish their creditworthiness. The key here is to find affordable ones and use them as little as possible to keep them building credit for you over time.