When it comes to credit cards, cash back offers are a popular feature. If you’re shopping around for a new credit card, you may have noticed cash back benefits. But should they turn your head? One of the big questions you might have is "Does cash back affect your credit score?” Loqbox explores cash back and credit scores in the UK.

What are cash back offers on credit cards?

Credit cards that offer cash back are more or less the same as credit cards that don’t. The difference is that you can get money in return for using the card. If you use your credit card for your everyday purchases, or to cover your bills, and you pay off your balance every month, the cashback you earn can help you make some nice savings.

The percentage cash back return you receive will normally be quite low (probably between 0.25% and 1%), although you may get higher introductory cash back offers for a set duration before it drops down again. Over time you might find that if you save the pennies, the pounds really will save themselves!

Does cash back affect credit scores?

When it comes to understanding cash back and credit scores, it’s important to know that they don’t directly impact one another. Using cash back offers doesn’t negatively affect your creditworthiness. In fact, when managed responsibly, using a credit card with cash back benefits can improve your credit score.

However, credit cards are an extremely easy and frictionless way of borrowing money. With a card in your pocket, you can pay for almost anything and borrow money at the tap of a card machine. That can make it more difficult to keep track of how much you’re borrowing day to day. You will have a limit to how much you can borrow, of course, and you are expected to pay it back every month or it will accrue interest.

Cash back offers encourage you to spend on your credit card regularly. In fact, if you want to really boost your cash back benefits, you’d need to buy as many things as possible on your credit card. So, you can see how cash back credit cards can become risky if you don’t manage them properly. Let’s look at the pros and cons.

How cash back benefits your credit score

Cash back rewards

Of course, the biggest cash back benefit is that you get cash in return for your purchases. So if you paid for £100 worth of items with 1% cash back, the total cost of your shopping would be £1 less. 

This can help to save you money over time when you use your credit card for your day-to-day shopping and bill paying. That won’t directly improve your credit score, but the savings you make could make it easier to stay on top of your regular payments. 

Credit score growth

If you manage your credit card properly, and pay off your monthly balance in full and on time, not only can you benefit from the cash returns that you earn on your credit card, but your credit score will thank you too. Lenders love to see responsible and consistent repayments so this sort of activity could give your credit score a nice boost.

Varied credit types

Cashback cards add diversity to your credit profile. A well-rounded mix of credit types, including credit cards, can positively impact your credit score over time.

What are cash back finance risks?

While cash back offers can be advantageous, it's important to be aware of potential risks when using them. Both for you and your credit score. Here are some of the risks: 

High balances and interest rates

Building up big balances, or missing monthly repayments, on high-interest cards can quickly outweigh the benefits of cash back, and potentially damage your credit score. It’s important to note that cashback credit cards often have higher interest rates than other cards without the feature. Always compare the APR (Annual Percentage Rate).

Cash back offers work best with high spending behaviour on your card. You might find that you feel tempted to overspend. If you allow your spending to outgrow your affordability, you could end up struggling to make your repayments. That can lead to poor financial decisions and mounting debts, which can negatively impact credit over time.

Application impact

Each credit card application may result in a temporary dip in your credit score. If you apply for cashback cards and you are declined, avoid applying for others in a short space of time. Lenders can see this activity as an indication that you’re struggling financially, which isn’t a great look on your credit report. 

Can I get cash back finance credit cards with bad credit?

If you’re considering applying for a cashback credit card, and you want to give yourself the best possible chance, it’s a good idea to check your credit score in advance. You can check your credit score, with each of the three main UK credit reference agencies (CRAs) using these free services. Checking won’t impact your credit score:

• ClearScore (uses Equifax data)*
• Experian App (uses Experian data)
• Intuit Credit Karma (uses TransUnion data)‍

* For transparency, if you decide to sign up to ClearScore using this link, we’ll receive a small commission.

If your credit score is low, you may find it difficult to have your application accepted, or at least the options made available to you will likely be more limited. That’s because cash back offers are generally aimed at people with higher credit scores. If your credit score could use a little improvement, you might benefit from boosting it before you apply for a cashback card. 

For a fast and proven way of boosting your credit score, why not get started with Loqbox?. For £2.50 per week you can build up your credit score with all three of the  UK’s main credit reference agencies. We report your responsible activity to the CRAs and help to give your credit score a push in the right direction. 

Improvements to your credit score are not guaranteed.

Find out more about credit scores and what affects them here.

So, are cash back offers worth it?

This really depends on you and your financial situation. If you are in a position to make your monthly repayments, using a cashback credit card responsibly for your day-to-day spending could help you to save money over time. 

However, if you think you might be tempted to overspend, and you’re worried you might miss your repayments, high interest rates can wipe out cash back benefits and possibly damage your credit score. Before you apply for a cash back credit card, it can be a good idea to focus on clearing any  debts you have elsewhere.  

For more general information on how credit cards affect your credit score, read our blog.