Is a mortgage or car loan in your future? If so, there are a few things you should know before you try to make that dream a reality. Buying a home or a car is a huge financial responsibility, one that requires a lot of time, discipline, and money. Most of us don't have enough cash to put down for the full purchase, which means having to turn to a bank for a loan to finance the purchase. In order to qualify, you'll need good credit. But what do you do if you're just starting out or have a bad credit score? There are a few ways you can work on getting your credit established or back on track. One way to do that is by applying for a store credit card like the one offered by Best Buy. Learn more about your credit score and how a Best Buy card can help your bottom line.
Understanding Your Credit Score
Your FICO score helps lenders decide whether they'll extend you credit. FICO stands for the Fair Isaac Corporation. This score is a three-digit number that is derived from your credit reports from the three major credit reporting agencies—Equifax, Experian, and Trans Union.
The FICO score calculated using five different factors, each with their own weighting based on importance:
- Payment history: 35%
- Balances owed: 30%
- Length of credit history: 15%
- New Credit: 10%
- Credit Mix: 10%
Essentially, more than two-thirds of the overall credit score is based on how well you pay off your balances in full and on time. The remainder of the credit score looks at information such as the length of your credit history and the frequency with which you open new lines of credit.
Keep in mind—a FICO score is a credit score, but not all credit scores are FICO scores. The way they're calculated, how they're used, and by whom are all differences between the two. Roughly 90% of lenders use FICO scores to make their credit decisions.
- Best Buy offers two different credit card options—an in-store credit card and a Best Buy Visa that can be used anywhere Visa is accepted.
- Both cards offer consumers rewards that can be used toward future Best Buy purchases.
- Best Buy cardholders can also take advantage of flexible financing on certain purchases.
- Paying your Best Buy credit card on time can give your credit history a boost.
Store Credit Cards
You're probably aware that almost every retail store—big or small— has a credit card. After all, almost every cashier you'll come across will ask you whether you'd like to apply for their card. Most of these credit cards are financed through different banks or financial companies. Some of the most notable are those available through Target, Amazon, Walmart, Costco, the Gap family—Gap, Banana Republic, and Old Navy—and Best Buy. Getting approved for a card from many retailers can be fairly easy—especially since the application can be done online or right at the cash register. That's because these lenders have looser restrictions that traditional credit card companies.
The majority of store credit cards come with no annual fees and often come with a very manageable credit limit so, hopefully, you won't be overspending. If you're a frequent shopper at that retailer—say at Best Buy—you can even earn points or other rewards. Best Buy offers two different credit card options—the My Best Buy Credit Card and the Best Buy Visa.
The Best Buy Credit Card can only be used at Best Buy. You can earn 5% back in rewards and another 1% if you're an elite cardholder. You also get flexible financing options if you're making larger purchases and have a credit limit that fits. The Visa card, on the other hand, can also be used anywhere Visa is accepted. Not only do you get the same perks as the in-store credit card, but you also get 3% back in rewards on gas purchases, 2% on dining, and 1% back on other purchases. Rewards can be used toward future Best Buy purchases.
But like any other store card, there is a catch. Expect to pay higher-than-average interest on the card. The annual percentage rate (APR) for both cards is 26.74% on regular purchases and both charge $40 for late payments. The Visa card charges 29.49% for cash advances plus a fee of $10 or 5% of the cash advance—whichever is greater.
Retail credit cards like those offered by Best Buy tend to have higher interest rates—an important factor to consider if you tend to carry a balance.
How the Best Buy Credit Card Can Help
If you use a Best Buy credit card but pay off the balance within the terms of the agreement, you will likely see an improvement in your credit score. Timely payments of any outstanding credit balances help you build a strong credit history and avoid paying any unnecessary interest and late fees.
The financing Best Buy offers on certain purchases means you may not have to pay interest, provided you pay off the full balance of the purchase on time. Doing so will likely result in a higher credit score, as it demonstrates to lenders that you can use the card responsibly and have the means to pay for what you have borrowed.