In today’s economy, it’s extremely important to have the best credit you can. Having a high credit score can help you to receive a lower interest rate on a home mortgage or a car loan, and can even result in more favorable insurance rates. And when you are trying to improve your credit, it’s important to consider what the best method of payment is.
How Different Payment Methods Affect Your Credit
Most forms of payment have no effect on your credit. Clearly, your use of cash or checks will not be reported to any of the major consumer credit bureaus, and it won’t impact your credit history or credit score in any way. It’s also a popular misconception that using a debit or a prepaid card will help your credit. When you use a debit or prepaid card, you aren’t being extended any credit. And since your credit history and credit score are designed to reflect your ability to repay a loan, debit and prepaid cards are not included in it.
However, credit cards require repayment and each purchase is considered to be a loan. Unlike other forms of payment, you will always receive a monthly statement when you use a credit card. And each month that you’ve made purchases or have a balance, you will be required to make a minimum payment on or before the statement’s due date. All of these payments are reported to the three major consumer credit bureaus, and your on-time payments will help your credit history and raise your credit score.
In fact, your payment history is the most important factor is used to make up your FICO credit score, representing 35% of your score. But with no payments to make, your debit or prepaid card will not contribute to your credit score.