While there are many things that determine your credit score — including your payment history, credit utilization, and the average age of your credit accounts — investing in stocks is not one of them.
That being said, while investing or opening an investment account does not directly affect your credit score, it’s possible for it to have an indirect effect. For instance, if you open a margin investment account that comes with a loan or line of credit, that debt may show up on your credit score. Additionally, your investment performance may have an impact on your overall financial picture, which can affect your ability to pay off your debts.
Key Points
• Investing in stocks does not directly impact your credit score.
• Opening a margin account may require a credit check as it can be viewed as a loan.
• A credit check for a margin account can temporarily lower your credit score.
• Poor investment performance can indirectly affect your credit score through financial strain.
• If investment performance is poor, a person might pay bills late or rely too heavily on high-interest credit cards.
How Does Trading Stocks Affect Your Credit Score?
There are many factors to consider before investing in stocks, like how to choose good investments or making sure that your overall finances are sound. The good news is that in most cases, you won’t need to worry about how trading stocks affects your credit score.
That’s because the amount of money you have in investment accounts (and how well you do at investing in stocks) does not usually show up on your credit report or impact your credit score. As such, investing isn’t a path toward establishing credit.
What Happens to Your Credit Score if You Open a Brokerage Account?
If you’re looking to get started with investing in stocks by working with a broker, know that brokerage accounts are not typically reported to the major credit bureaus. This means that opening a brokerage account generally should not have any overall impact on your credit score.
One possible exception is if you open a margin account. Margin accounts allow you to borrow money and buy stocks for more than the actual cash you have in your account. Because some brokerages consider margin accounts as loans, there may be a credit check involved. This could have a small impact on your credit score (typically, it will lower your score by several points), but it usually goes away after a few months.
How Does Opening an Investment Account Affect Your Credit Score?
Most investment accounts do not show up on your credit report. So, opening an investment account will generally not affect your credit score. Whether you are buying stocks with a credit card or investing by depositing cash into your account, your balance and investment performance will not impact your credit score.
That being said, opening an investment account and actively investing in stocks or other investments can indirectly affect your credit score. If you end up losing money in the stock market, it might negatively impact your ability to meet your other debt obligations. Should you have money tied up in your investment account and end up leaning more on your credit cards to cover costs or missing payments, that can have a negative impact on your credit score (say, by raising your credit utilization ratio or leading to late payment) and hamper your efforts at building credit.
How Making Investments May Affect Your Credit Score
There are many different ways to invest your money, and many different types of investments. But nearly all investment accounts do not show up in your credit score. So regardless of what type of investing you prefer — whether stocks, bonds, mutual funds, precious metals, or something else — your investing activity should not impact your credit score.
Investing in stocks is one popular way that some people build wealth. While there are pros and cons to investing in stocks, it’s important to realize that investing in stocks — or most types of investments, for that matter — does not show up on your credit report and does not affect your score.
That said, there are other ways to positively impact your credit score, including using a credit card wisely.
Whether you're looking to build credit, apply for a new credit card, or save money with the cards you have, it's important to understand the options that are best for you. Learn more about credit cards by exploring this credit card guide.
FAQ
Can I open a brokerage account with a bad credit score?
Yes, you can open a brokerage account with a bad credit score. Generally speaking, your broker will not issue a credit check to open a brokerage account. Additionally, in most cases, your brokerage account will not show up on your credit report. One exception may be if you apply for a margin account. Margin accounts can be considered loans, so your broker may not approve you for one if you have bad credit.
Can I open an investment account with a bad credit score?
There generally is not a credit check to open an investment account, so it is usually possible to open an investment account even if you have a bad credit score. Further, most investment accounts will not show up on your credit report, help you build credit, or impact your credit score.
Do stocks show up on your credit report?
In most cases, stocks (as well as bonds, mutual funds, and other investments) do not show up on your credit report. Your account information, balance, and investment performance do not usually impact your credit score.
Photo credit: iStock/tdub303
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
This content is provided for informational and educational purposes only and should not be construed as financial advice.
Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .
Third Party Trademarks: Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®
While joining a credit union likely won’t affect your credit score in and of itself, some of the financial products offered by credit unions can have an impact on your score. For example, a credit union may offer lower interest rates on loans, which can help you keep an affordable monthly payment that’s easier to make on time. You also may be more likely to get approved for a credit union credit card than one from a bank, and responsibly using that card could help you build your credit score.
Key Points
• Credit unions, which are nonprofit financial institutions, do not help build your credit in and of themselves.
• Credit unions may offer easier credit card approval, especially for beginners, which can help build credit.
• Lower interest rates and fewer fees help manage and pay off debt more effectively.
• Automatic payments from checking to credit card accounts prevent missed payments.
• Funds in credit unions are insured by the NCUA, ensuring account safety.
What Is a Credit Union?
A credit union is a nonprofit financial organization that exists to serve its members, who are also its owners. This can mean that credit unions may be able to offer higher interest rates on savings and lower interest rates on loans and credit cards, as well as charge fewer fees.
Credit unions can offer many of the same financial services and products as banks and online lenders, though their lineup and number of locations can be a bit more limited. To gain access to a credit union’s products, you’ll need to become a member, which entails meeting certain requirements. Credit unions often target certain communities or regions.
Here’s a brief look at how credit unions compare with both banks and online lenders:
Credit Unions
Banks
Online Lenders
Not-for-profit
Usually for-profit
Usually for-profit
Typically offer lower interest rates on loans than banks or online lenders
Typically charge higher interest rates on loans than credit unions
Typically charge higher interest rates on loans than credit unions
May offer an array of basic financial products
Often offer a full spectrum of financial products and services
May offer an array of basic financial products
What Is a Credit Union Credit Card?
Many credit unions partner with credit card issuers to issue a cobranded credit card. The types of credit cards that are offered by credit unions vary widely depending on the particular credit union. They can include rewards credit cards that offer points or cash back or secured cards designed for those looking to build their credit.
What Credit Score Is Typically Needed for a Credit Union Credit Card?
Each credit union is owned by its respective members, so there isn’t a set credit score that’s needed for a credit union credit card. Rather, each credit union sets its own parameters for the credit score and other financial requirements for approval.
That being said, you may have better luck getting approved at a credit union compared to a traditional bank, even if you are still building your credit. Some credit unions may be more flexible than other lenders, but keep an eye on what interest rate you will be charged. Typically, the lower your qualifying score, the higher your interest rate.
How a Credit Union Credit Card Can Help Build Your Credit Score
Here are some of the ways a credit union credit card could help you to build your credit score.
Potentially Easier Approval
Getting approved for and opening a credit card or loan is key to establishing credit. However, it can be challenging to get credit if you’ve never had it before. Because credit unions are owned by their members, you may find it easier to get approved for a new credit card. And if you are denied, it may be easier to talk with a customer service representative and learn what steps you might take to access a card.
Lower Interest Rates
While this isn’t necessarily true across the board, many credit unions offer lower interest rates on debt products like loans and credit cards. Having a lower interest rate can help you build your credit score by making it easier to stay on top of paying down debt.
Fewer Fees
Along with lower interest rates, it‘s common for credit unions to charge fewer fees than traditional banks or other lenders. Since credit unions are not-for-profit, they don’t need to charge some of the fees that banks and other financial institutions do. Paying fewer fees can help you keep more of your money in your pocket to pay down debt and save for the future.
Automatic Payments Option
Many credit unions allow you to set up automatic payments on your credit union credit card account. Additionally, most credit unions offer different checking and savings account options, so you can easily pay your credit card from your checking account. This setup helps avoid missing payments, which can help to build your credit score, given one of the best tips for building credit is to pay your debt obligations in full and on time, each and every month.
Just like money in banks is insured by the Federal Deposit Insurance Corporation (FDIC), the funds you keep in credit union accounts are insured by the National Credit Union Administration (NCUA). NCUA is an organization of the federal government that insures up to $250,000 per individual account that you have at a federally insured credit union.
Still, you’ll also want to take simple steps to keep your account safe online, such as verifying transactions and choosing strong passwords.
Is It Worth It to Join a Credit Union?
Joining a credit union can be a wise financial move, especially if you find one that is a good fit for you and that offers the products and services you need. Many people enjoy being a partial owner of a credit union rather than just being one more customer at a for-profit bank, as credit unions tend to be more community-oriented. And the good news is that switching banks is usually not that difficult.
Alternative Ways to Build Your Credit Score
Joining a credit union won’t help build your credit score on its own, but it can be a good first step toward building your credit. Here are a few other ways that you can build your credit score:
Credit unions are nonprofit financial institutions that offer many of the same financial products as banks and other online lenders. But unlike banks, credit unions are owned by their members, which can help keep interest rates high and fees low. Joining a credit union won’t help you build your credit by itself, but taking advantage of credit union perks and financial products may help you build your credit.
Whether you're looking to build credit, apply for a new credit card, or save money with the cards you have, it's important to understand the options that are best for you. Learn more about credit cards by exploring this credit card guide.
FAQ
Will joining a credit union build my credit score?
Joining a credit union in and of itself will not build your credit score, since the fact that you are a member of a credit union does not usually appear on your credit report. However, credit unions offer many financial products, including loans and credit cards. Making responsible use of some of these credit union offerings can help you build your credit.
What are the disadvantages of joining a credit union?
Because credit unions are owned by their members, you generally can’t simply open up an account. Instead, you may have to belong to a specific group or pay a small membership fee to get an account. Many credit unions are also smaller than most banks, so they may not offer all of the financial products you’d find at a larger bank.
Will credit union credit card payments show up on my credit report?
Most credit card payments — including credit union credit card payments — are reported to the major credit bureaus. Paying your statement balance on time and keeping your balance low can be great ways to help build your credit.
Photo credit: iStock/sshepard
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
This content is provided for informational and educational purposes only and should not be construed as financial advice.
Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .
Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
Store credit cards can help you build credit as long as you use them responsibly and the activity is reported to the major credit bureaus. If you’re not sure if you’re ready for a traditional credit card, you might consider a retail store credit card as an alternative.
Retail credit cards, also known as store credit cards, are credit cards issued by specific retailers. Some store credit cards are good only at the issuing store (or their partners). Others are cobranded by a network like Visa or Mastercard and accepted anywhere those networks are. Learn the details about store credit cards and building credit here.
Key Points
• Store credit cards, which usually restrict usage to certain stores or chains, can help build credit if activity is reported to the credit bureaus and you use them wisely.
• Store cards often come with higher interest rates, making them costlier for users.
• Credit limits on store cards are typically lower compared to general credit cards.
• Benefits and rewards are usually limited to the issuing store, reducing overall value.
• Late payments can negatively impact credit scores, affecting financial health.
What Is a Store Credit Card?
A store credit card is a credit card that is issued by a specific retailer and usually has perks and benefits associated with that specific store or chain. This category of credit card generally works much like other credit cards, which means they can be useful in building credit as long as they’re used responsibly.
However, store credit cards tend to have higher interest rates and easier approval requirements compared to traditional credit cards.
• Closed-loop store credit cards: The first type of store credit card is a closed-loop store credit card. These can typically only be used at the retailer that issues the card.
• Open-loop store credit cards: Open-loop store credit cards are another type of store credit card. They’re typically co-branded alongside a credit card payment network like Mastercard, American Express, or Visa, and are good anywhere those networks are accepted.
Is Getting a Store Credit Card a Good Idea?
Getting a store credit card can be a good option if you are working on establishing credit. If your store credit card reports usage to the major credit bureaus, then responsibly using a store credit card can be helpful. However, this can work against you, too, if you open a store credit card and don’t follow good credit card habits.
Factors to Consider When Getting a Store Credit Card
The biggest factor you’ll want to consider when getting a store credit card is whether it’s a closed-loop or open-loop card. That will let you know whether you can only use it at the issuing store or whether it’s good at other places.
You’ll also want to understand whether your store card is a charge card or credit card (with a charge card, you won’t have the option to carry a balance). Also find out whether the issuer reports usage to the major credit bureaus, especially if you intend to use the card to build your credit from scratch.
Store credit cards can help build your credit, as long as the card reports usage information to the major credit bureaus. Responsibly using a store credit card can show a history of on-time payments and add an additional line of credit to your credit mix. Additionally, it has the potential to positively affect your overall credit utilization — the amount of your total available credit limit you’re using — by bolstering your overall credit limit.
Can a Store Credit Card Set Back Your Credit Progress?
It’s important to use credit cards wisely, and that includes store credit cards. A store credit card certainly can set back your credit progress if you don’t use it responsibly. If you have late or missed payments or carry a balance that’s near your total credit limit, it may have a negative impact on your credit score.
Do Store Credit Cards Applications Require Hard Inquiries?
Yes, in most cases a store credit card application will generate a hard vs. soft inquiry on your credit report. A hard credit inquiry shows up on your credit report when a potential lender asks for your complete credit report. This inquiry may lower your credit score by a few points for a short period of time, so you’ll want to limit how many credit accounts you apply for.
Benefits of Store Credit Cards
One benefit of a store credit card is that it may be easier to get approved for, especially if it’s a closed-loop store card. Retailers know that cardholders are likely to shop more frequently at their store. As such, they may be more inclined to approve you for a card, even if you don’t have an extensive history of good or excellent credit.
Another potential benefit is the store-specific perks, rewards, or benefits that a store may offer to its cardholders.
Drawbacks of Store Credit Cards
There are downsides to store credit cards to consider as well. For one, they may come with higher interest rates and lower credit limits. It can be easier to drive up your credit utilization ratio, a factor that affects your credit score, with a lower credit limit. Further, if your store credit card is a closed-loop card, you’ll be limited to using it at that specific retailer.
To recap, here are some of the pros and cons of applying for and using a store credit card:
Pros of Store Credit Cards
Cons of Store Credit Cards
Easier to get approved for than a traditional credit card
May come with higher interest rates
Can offer solid store-specific perks, benefits, and rewards
May have lower credit limits, which can make it easier to drive up credit utilization
Can help you build credit when used responsibly
Closed-loop store cards can only be used at that specific store or chain
If applying for and using a store credit card doesn’t fit into your financial plans, here are a few other ways to build credit that you might consider:
A store credit card can help you build credit, as long as it reports usage to the major credit bureaus and you use it responsibly. In fact, opening a store credit card and using it wisely can be a smart step toward establishing credit since, in many cases, they’re easier to get approved for than a traditional credit card.
Whether you're looking to build credit, apply for a new credit card, or save money with the cards you have, it's important to understand the options that are best for you. Learn more about credit cards by exploring this credit card guide.
FAQ
Do store credit cards affect your credit?
Yes, store credit cards can affect your credit if they report usage and history to the major credit bureaus. If you regularly pay off your bill each month and keep your statement balance low, it should help build a positive credit history.
Do store credit cards require hard credit checks?
Yes, most store credit cards require a hard credit check when you apply. A hard credit check (or hard pull) happens any time a potential lender asks for your full credit history to help decide whether they will extend you credit. Because each hard pull can temporarily lower your credit score by a few points, you’ll want to limit how many new credit accounts you apply for in a short period of time.
Will closing store credit cards hurt my credit score?
There are some cases where closing a credit card — either a store credit card or a traditional credit card — can hurt your credit score. The main reason why closing a credit card can impact your credit score is by possibly driving up your credit utilization percentage, as your overall credit limit will decrease. In addition, it could shorten your credit history. Make sure that you understand the possible ramifications before you close a credit card account.
Do retail credit cards build credit?
Retail credit cards can help you build credit as long as they report to the major credit bureaus. Just make sure to use your store or retail credit cards wisely so that it will have a positive impact on your credit score.
Photo credit: iStock/Nastasic
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
This content is provided for informational and educational purposes only and should not be construed as financial advice.
Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .
Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
Third Party Trademarks: Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®
You can build credit with a jewelry purchase if you buy it using a payment plan or with a credit card. When doing so, snagging that watch, engagement ring, or diamond bracelet could help you build your credit score from scratch or take your three digits up a notch or two. To do so, you would have to pay your bills on time and make sure your credit utilization doesn’t rise too high. Learn the details here.
Key Points
• Buying jewelry can indirectly build credit through installment plans and store credit cards.
• Installment plans may or may not be reported to the credit bureaus.
• Store credit cards often have lower credit limits and higher interest rates.
• Regular, timely payments on store credit cards or installment plans that are reported to the credit bureaus can build credit scores.
• Consider the terms and conditions before applying for an installment plan or store credit card.
Options for Buying Jewelry on Credit
By purchasing jewelry on credit, it’s possible to build your credit score. Here are a couple of ways that you can do so.
Jewelry Store Financing
Here are two common options:
• Most major jewelry stores offer payment plans, where you pay for your jewelry purchase in installments. This activity may be reported to the credit bureaus. What’s more, you might be able to take advantage of a promotional offer, which could offer interest-free financing for six to 12 months.
While an installment plan can help you build credit, you could end up paying interest on your purchase even with a promotional offer. If you’re late on payments or don’t pay off your balance in time, expect to pay significantly more. Further, to qualify for financing through a retailer, you’ll likely need stellar credit, which is a tall order if you’re building credit from scratch.
• Alternatively, some retailers might allow you to finance your purchase with a buy now, pay later (BNPL) plan. A type of installment plan, a BNPL plan requires you to make an initial payment upfront, then divides the remaining balance into equal installments. You’ll then get billed to your credit card until you’ve paid off the amount owed in full.
Say you’re planning to propose and agree to engagement ring financing under a BNPL plan. Many plans offer a “pay-in-four” model, where your purchase is divided into four installments, each of which is due every two weeks. If the engagement ring costs $5,500 — which is the average engagement ring cost — you would pay $1,375 initially, then $1,375 every two weeks over the course of six weeks. The pay-in-four setup means you likely wouldn’t owe interest, though longer term plans may charge an annual percentage rate (APR).
If you’re building credit from scratch or have credit that’s poor or fair, then a retailer credit card from a jewelry store might be a solid route to take. Many jewelry store credit cards only require fair credit in order to open an account.
You can also try getting a credit card from a department store that sells jewelry. Typically, retailer or store credit cards are easier to get approved for when you have less-than-great credit. However, note that they also typically come with higher interest, low credit limits, and some constraints, such as only being able to use the card with the retailer.
As mentioned, building credit with jewelry purchases is possible if you tap into a financing option that reports your payment activity to the major credit bureaus. Options that do so can include financing through a jewelry store, using a jewelry or retailer credit card, or signing up for a buy now, pay later (BNPL) plan.
Of course, for any of those options to help you with establishing credit, you’ll need to stay on top of making your payments on time. Also make sure you’re adhering to other responsible credit behaviors, such as avoiding maxing out your credit limit if you opt for a jewelry store credit card.
How Jewelry Store Credit Cards Can Impact Your Credit Score
When you use a jewelry store credit card, your payments are reported to the credit bureaus. If you’re using your card responsibly and making payments on time, that activity can help to build your credit score. On the flipside, if you fall behind on payments or miss a due date, your credit score could suffer.
Payment history isn’t the only factor that will impact your credit score though. Applying for the credit card will result in a hard inquiry, which usually temporarily lowers your credit score by a bit. And you’ll want to think twice about canceling your card after making your jewelry purchase and paying it off — doing so could affect the length of your credit history, another factor that helps determine your credit score.
Retailers can earn money on interest charges from financing, and potentially get you to make a more expensive purchase than you otherwise would have if you didn’t finance. As such, they have good reason to persuade you to finance that stunning piece of jewelry you’ve had your eye on.
Here are some tactics they might employ to get you to agree to a payment plan or use a retailer credit card:
• Zero-interest promotional offers: By offering a no-interest promotional period on a payment plan or credit card, a jewelry store may encourage you to purchase.
• In-store promotions: You might see a poster or flier while perusing the jewelry cases. This might motivate you to make your purchase now — as opposed to treating it as an item worth saving for — and therefore agreeing to financing.
• Several financing options: The sales representative at the store might offer a few ways for you to finance that piece of jewelry, such as an installment plan, BNPL program, or by opening a jewelry store credit card.
Before agreeing to anything, make sure to ask questions to ensure you fully understand what you’d be getting into. You might even consider leaving the store and then coming back later, to give yourself time to think about your purchase and assess the financing options.
What to Ask Before Using a Jewelry Store Credit Card
If you’re considering opening a jewelry store credit card, here are some questions to ask yourself before submitting your application:
• Can I afford to pay it off? While using a jewelry store credit card can help you build credit and make that large purchase affordable, do some simple math before moving ahead. Determine how long it will take to pay off the balance on the card and whether those payments realistically work within your current budget.
• What’s the APR? If you’re using a credit card to cover your jewelry purchase, you might not be in a position to pay off your full balance when the due date hits. As such, you’ll want to be aware of the credit card’s annual percentage rate (APR) to determine how much interest will add to the total cost of your jewelry purchase.
• Is there a promotional period? If you qualify for a no-interest promotional period, it’s important to know how long it will last and when the standard interest rate will kick in. Aim to pay off your purchase before that happens to avoid paying interest.
What to Avoid When Buying Jewelry With Credit
When financing jewelry to build credit, there are a few big things to keep in mind that can help you steer clear of financial trouble.
• You’ll want to avoid putting too much on your card. Doing so can drive up your credit utilization ratio, which compares how much of your overall credit you’re using and plays a role in determining your credit score. For example, if you have one credit card with a credit limit of $1,000 and you’re buying a $600 piece of jewelry, that would push your credit utilization to 60%. It’s typically recommended to keep your credit utilization ratio below 30%.
• You’ll likely want to avoid opening a credit card with a promotional offer that’s too short for you to comfortably pay off your balance before it ends. If you’re still making payments when the standard interest rate kicks in, you could end up paying a lot in interest — and making your jewelry purchase that much more expensive.
• Be aware of whether you’re splurging on something that you might not have bought otherwise. While investing in precious metals might seem like a good move, putting something on credit can create the illusion that you can afford it. But in reality, the purchase could end up costing you even more in the long run, thanks to the addition of interest charges.
Besides buying jewelry to build credit, here are a few other ways that you can do so:
• Get a secured card.
• Take out a credit-builder loan.
• Become an authorized user on someone else’s credit card.
• Take out a personal loan.
• Use an auto loan to finance your next car purchase.
• Sign up for a service that reports your rent and utilities payments to the credit bureaus.
• Get a credit card, and then use it responsibly.
The Takeaway
If you’re curious about how to build credit with jewelry, consider financing your jewelry purchase by taking out a payment plan or by opening a jewelry store credit card. Before doing so, however, know that store payment plans usually require that you have strong or excellent credit.
Rest assured, buying jewelry isn’t the only way to build credit. There are other options available, such as using credit cards wisely.
Whether you're looking to build credit, apply for a new credit card, or save money with the cards you have, it's important to understand the options that are best for you. Learn more about credit cards by exploring this credit card guide.
FAQ
Do you need good credit to finance jewelry?
If you’d like in-store financing for jewelry, such as an installment plan, then you typically need excellent credit. However, retail credit cards usually only require a fair credit score.
Are there jewelry stores that give credit?
Yes, major jewelry stores usually offer installment plans, and some might have a branded retail credit card that you can apply for.
Is it easy to get credit at jewelry stores?
Retail credit cards are usually easier to qualify for than other types of credit cards, even if you have fair credit. However, while they’re often easier to get approved for, they often come with higher APRs, low credit limits, and various restrictions.
Photo credit: iStock/pixelfit
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
This content is provided for informational and educational purposes only and should not be construed as financial advice.
Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .
Third Party Trademarks: Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®
There are millions of credit card accounts in the United States alone, and it’s estimated that 90% of adults in the U.S. have at least one credit card. Yet, many people don’t have a firm grasp on the basics of what a credit card is and how credit cards work.
If you have a credit card account, or plan on ever using one, it’s important to understand the fundamentals of credit cards. This ranges from what a credit card is to how credit card interest works to how credit cards relate to credit scores.
Key Points
• Credit cards allow users to borrow money for purchases, with repayment typically due monthly.
• Interest is charged on unpaid balances, and rates vary based on creditworthiness.
• Credit card companies report payment history to credit bureaus, impacting credit scores.
• Rewards programs offer cash back, points, or miles for spending, with varying terms.
• Late payments can result in fees and increased interest rates, negatively impacting credit scores.
What Is a Credit Card?
A credit card is a type of payment card that is used to access a revolving line of credit.
Credit cards differ from other types of loans in that they offer a physical payment card that is used to make purchases. Traditionally, credit cards are made of plastic, but an increasing number of credit card issuers now offer metal cards, usually for their premium accounts that offer travel rewards.
But a credit card account is much more than a plastic or metal payment card. A credit card account is a powerful financial tool that can serve many purposes. Here’s a closer look:
• It can be a secure and convenient method of payment anywhere that accepts credit card payments. It also can be used to borrow money in a cash advance or to complete a balance transfer.
• Credit cards can offer valuable rewards, such as cash back and travel rewards like points or miles. Cardholder benefits can also include purchase protection and travel insurance policies.
• If used responsibly, a credit card can help you to build your credit score and history, which can open up new borrowing opportunities.
• Of course, credit cards can also damage your credit when used irresponsibly. If you rack up debt on your credit card, it can be hard to get it paid off and get back in the clear (here, for instance, is what happens to credit card debt when you die).
Credit cards offer a line of credit that you can use for a variety of purposes, including making purchases, completing balance transfers, and taking out cash advances. You can borrow up to your credit limit, and you’ll owe at least the minimum payment each month.
You can apply for a credit card from any one of hundreds of credit card issuers in the U.S. Card issuers include national, regional, and local banks, as well as credit unions of all sizes. Card issuers will approve an application based on the credit history and credit score of the applicant, among other factors.
There are credit cards designed for people with nearly every credit profile, from those who have excellent credit to those with no credit history or serious credit problems. As with any loan, those with the highest credit score will receive the most competitive terms and benefits.
Once approved, you’ll likely receive a credit limit that represents the most you can borrow using the card. Whether your limit is above or below average credit card limit depends on a variety of factors, including your payment history and income.
The credit card is then mailed to the account holder and must be activated before use. You can activate a credit card online or over the phone. So long as your account remains in good standing, it will be valid until the credit card expiration date.
Once activated, the card can be used to make purchases from any one of the millions of merchants that accept credit cards. Each card is part of a payment network, with the most popular payment networks being Visa, Mastercard, American Express, and Discover. When you make a payment, the payment network authenticates the transaction using your card’s account number and other security features, such as the CVV number on a credit card.
Every month, you’ll receive a statement from the card issuer at the end of each billing cycle. The statement will show the charges and credits that have been made to your account, along with any fees and interest changes being assessed.
Your credit card statement will also show your balance, minimum payment due, and payment due date. It’s your choice whether to pay your minimum balance, your entire statement balance, or any amount in between. Keep in mind that you will owe interest on any balance that’s not paid back.
If you don’t make a payment of at least the minimum balance on or before the due date, then you’ll usually incur a late fee. And if you pay more than your balance, you’ll have a negative balance on your credit card.
There are a number of potential fees that credit card holders may run into. For example, some credit cards charge an annual fee, and there are other fees that some card issuers can impose, such as foreign transaction fees, balance transfer fees, and cash advance fees. Cardholders may also incur a late fee if they don’t pay at least the minimum due by their statement due date.
Often, however, you can take steps to curb credit card fees, such as not taking out a cash advance or making your payments on-time. For a charge like an annual fee, cardholders will need to assess whether a card’s benefits outweigh that cost.
3 Common Types of Credit Cards
There are a number of different kinds of credit cards out there to choose from. Here’s a look at some of the more popular types.
Rewards Credit Cards
As the name suggests, rewards credit cards offer rewards for spending in the form of miles, cash back, or points — a rewards guide for credit cards can give you the full rundown of options. Cardholders may earn a flat amount of cash back across all purchases, or they may earn varying amounts in different categories like gas or groceries.
Some programs, like SoFi Plus, provide exclusive benefits that go beyond standard rewards, offering additional perks for members who qualify
Balance Transfer Credit Cards
Balance transfer cards allow you to move over your existing debt to the card. Ideally, this new card will have a lower interest rate, and often they’ll offer a lower promotional rate that can be as low as 0% APR. However, keep in mind that this promo rate only lasts for a certain period of time — after that, the card’s standard APR will kick back in.
Secured Credit Cards
If you’re new to credit or trying to rebuild, a secured credit card can be a good option. Generally, when we talk about credit cards, the default is an unsecured credit card, meaning no collateral is involved. With a secured credit card, you’ll need to make a deposit. This amount will generally serve as the card’s credit limit.
This deposit gives the credit card issuer something to fall back on if the cardholder fails to pay the amount they owe. But if you’re responsible and get upgraded to a secured credit card, or if you simply close your account in good standing, you’ll get the deposit back.
How Does Credit Card Interest Work?
The charges you make to your credit card are a loan, and just like a car loan or a home loan, you can expect to pay interest on your outstanding credit card balance.
That being said, nearly all credit cards offer an interest-free grace period. This is the time between the end of your billing period and the credit card payment due date, typically 21 or 25 days after the statement closing date. If you pay your entire statement balance before the payment due date, then the credit card company or issuer will waive your interest charges for that billing period.
If you choose not to pay your entire statement balance in full, then you’ll be charged interest based on your account’s average daily balance. The amount of interest you’re charged depends on your APR, or annual percentage rate. The card issuer will divide this number by 365 (the number of days in the year) to come to a daily percentage rate that’s then applied to your account each day.
As an example, if you had an APR of 15.99%, your daily interest rate that the card issuer would apply to your account each day would be around 0.04%.
As an example, if you had an APR of 24.99%, your daily interest rate that the card issuer would apply to your account each day would be around 0.07%.
Although they look almost identical, much differs between debit cards vs. credit cards. Really, the only thing that debit cards and credit cards truly have in common is that they’re both payment cards. They both belong to a payment network, and you can use them to make purchases.
With a debit card, however, you can only spend the funds you’ve already deposited in the checking account associated with the card. Any spending done using your debit card is drawn directly from the linked account. Because debit cards aren’t a loan, your use of a debit card won’t have any effect on your credit, positive or negative.
But since it isn’t a loan, you also won’t be charged interest with a debit card, nor will you need to make a minimum monthly payment. You will, however, need to make sure you have sufficient funds in your linked account before using your debit card.
Another key difference between credit cards vs. debit cards is that credit card users are protected by the Fair Credit Billing Act of 1974. This offers robust protections to prevent cardholders from being held responsible for fraud or billing errors. Debit card transactions are subject to less powerful government protections.
Lastly, debit cards rarely offer rewards for spending. They also don’t usually feature any of the travel insurance or purchase protection policies often found on credit cards. You likely won’t be on the hook for an annual fee with a debit card, which is a fee that some credit card issuers do charge, though you could face overdraft fees if you spend more than what’s in your account.
To recap, here’s an overview of the differences between credit cards and debit cards:
Credit cards
Debit cards
Can be used to make purchases
Yes
Yes
Can be used to borrow money
Yes
No
Must deposit money before you can make a purchase
No
Yes
Must make a minimum monthly payment
Yes
No
Can provide purchase protection and travel insurance benefits
Often
Rarely
Can offer rewards for purchases
Often
Rarely
Can help or hurt your credit
Yes
No
Can use to withdraw money
Yes, with a cash advance
Yes
Pros and Cons of Using Credit Cards
Beyond knowing what a credit card is, it’s important to familiarize yourself with the pros and cons of credit cards. That way, you can better determine if using one is right for your financial situation.
To start, notable upsides of using credit cards include:
• Easy and convenient to use
• Robust consumer protections
• Possible access to rewards and other benefits
• Ability to avoid interest by paying off monthly balance in full
• Potential to build credit through responsible usage
However, also keep these drawbacks of using credit cards in mind:
• Higher interest rates than other types of debt
• Temptation to overspend
• Easy to rack up debt
• Various fees may apply
• Possible to harm credit through irresponsible usage
How to Compare Credit Cards
Since there are hundreds of credit card issuers, and each issuer can offer numerous individual credit card products, it can be a challenge to compare credit cards and choose the one that’s right for your needs. But just like purchasing a car or a pair of shoes, you can quickly narrow down your choices by excluding the options that you aren’t eligible for or that clearly aren’t right for you.
Start by considering your credit history and score, and focus only on the cards that seem like they align with your credit profile. You can then narrow it down to cards that have the features and benefits you value the most. This can include having a low interest rate, offering rewards, or providing valuable cardholder benefits. You may also value a card that has low fees or that’s offered by a bank or credit union that you already have a relationship with.
Once you’ve narrowed down your options to a few cards, compare their interest rates and fees, as well as their rewards and benefits. You can find credit card reviews online in addition to user feedback that can help you make your final decision.
Important Credit Card Terms
One of the challenges to understanding how credit cards and credit card payments work is understanding all of the jargon. Here’s a small glossary of important credit card terms to help you to get started:
• Annual fee: Some credit cards charge an annual fee that users must pay to have an account. However, there are many credit cards that don’t have an annual fee, though these cards typically offer fewer rewards and benefits than those that do.
• APR: This stands for annual percentage rate. The APR on a credit card measures its interest rate and fees calculated on an annualized basis. A lower rate is better for credit card users than a higher rate.
• Balance transfer: Most credit cards offer the option to transfer a balance from another credit card. The card issuer pays off the existing balance and creates a new balance on your account, nearly always imposing a balance transfer fee.
• Card issuer: This is the bank or credit union that issues the card to the cardholder. The card issuer the company that issues statements and that you make payments to.
• Cash advance: When you use your credit card to receive cash from an ATM, it’s considered a cash advance. Credit card cash advances are usually subject to a much higher interest rate and additional fees.
• Chargeback: When you’ve been billed for goods or services you never received or that weren’t delivered as described, you have the right to dispute a credit card charge, which is called a credit card chargeback. When you do so, you’ll receive a temporary credit that will become permanent if the card issuer decides the dispute in your favor.
• Due date: This is the date you must make at least the credit card minimum payment. By law, the due date must be on the same day of the month, every month. Most credit cards have a due date that’s 21 or 25 days after the statement closing date.
• Payment network: Every credit card participates in a payment network that facilitates each transaction between the merchant and the card issuer. The most common payment networks are Visa, Mastercard, American Express, and Discover. Some store charge cards don’t belong to a payment network, so they can only be used to make purchases from that store.
• Penalty interest rate: This is a separate, higher interest that can apply to a credit card account when the account holder fails to make their minimum payment on time.
• Statement closing date: This is the last day of a credit card account’s monthly billing cycle. At the end of this day, the statement is generated either on paper or electronically, or both. This is the day on which all the purchases, payments, fees, and interest are calculated.
Credit Cards and Credit Scores
There’s a lot of interplay between credit cards and your credit score.
For starters, when you apply for a new credit card, that will affect your score. This is because the application results in a hard inquiry to your credit file. This will temporarily ding your score by a few or several points, and it will remain on your credit report for two years, though the effects on your credit don’t last as long.
Further, how you use your credit card can impact your credit score — either positively or negatively. Having a credit card could increase your credit mix, for instance, which can have a positive impact. Or, closing a longstanding credit card account may shorten the age of your accounts, resulting in a negative impact to your score.
Making timely payments is key to maintaining a healthy credit score, as is keeping a low credit utilization rate (the amount of your overall available credit you’re currently using). If you max out your credit card or miss payments, that won’t bode well for your credit score. Conversely, staying on top of payments can be a great step toward building your credit.
The Takeaway
Credit cards work by giving the account holder access to a line of credit. You can borrow against it up to your credit limit, whether for purchases and cash advances. You’ll then need to pay back the amount you borrowed, plus interest, which is typically considered to be a high rate vs. other forms of credit. For this reason, it’s important to spend responsibly with a credit card.
Whether you're looking to build credit, apply for a new credit card, or save money with the cards you have, it's important to understand the options that are best for you. Learn more about credit cards by exploring this credit card guide.
FAQ
How does a person shop for a credit card?
To shop for a credit card, start by looking at your credit score to determine what cards you may be able to qualify for. Then, decide what kind of card is best for your needs, such as a card that has a low interest rate, one that will allow you to build credit, or a card that offers rewards. Finally, compare similar products from competing card issuers to assess which is the most competitive offer available to you.
Can I use my credit card abroad?
Yes, most credit card payment networks are available in most countries. As long as you visit a merchant that accepts cards from the same payment network that your card belongs to, then you’ll be able to make a purchase.
How do you use a credit card as a beginner?
If you’re new to credit and working to build your score, you’ll want to make sure you’re as responsible with your card as possible. Pay your bill on time, and aim to pay in full if you can to avoid interest charges. Use very little of your credit limit — ideally no more than 30%. And make sure to regularly review your credit card statements and your credit report. But don’t let any of that scare you away from using your card either — it’s important to regularly use your card for small purchases to get your credit profile built up.
How do credit cards work in simple terms?
Credit cards offer access to a line of credit. You can borrow against that, up to your credit limit, for a variety of purposes, including purchases and cash advances. You’ll then need to pay back the amount you borrowed.
How do payments on a credit card work?
At the end of each billing cycle, you’ll receive a credit card statement letting you know your credit card balance, minimum payment due, and the statement due date. You’ll then need to make at least the minimum payment by the statement due date to avoid late fees and other consequences. If you pay off your full balance, however, you’ll avoid incurring interest charges. Otherwise, interest will start to accrue on the balance you carry over.
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