Store credit card: are they good or bad for your score?

If you were offered one of these cards at some point in life we hope the following question came to mind: Can this hurt my credit score? 

It depends a lot on your credit situation and on your financial health. Which means we really recommend you read this article until the end to understand when you should and shouldn’t get one of these cards. 

What is a store credit card? 

The offer starts in a very alluring way: you’re about to pay for a purchase at your favorite retail store and the cashier interrupts. There’s a way to save up a lot on the payment and whenever you decide to come back to the store. 

And more! You could get various prizes or cashback after a few purchases, which seems totally possible in the heat of the moment. The part of us that’s less concerned about finances is probably screaming to get that discount right now. 

Well, getting or not getting a store credit card is quite the trick question. They’re usually a good choice for anyone who’s new to credit, since they require a low credit score. But that means you’ll only be able to purchase in certain stores and have high interest rates. 

Is a store credit card the same as a regular card? 

For starters, a store credit card doesn’t work everywhere. You can’t use it at as many online shops as you want, abroad or at any place that isn’t the group of stores defined on the card. Another great difference is how easy they are to get approved for. 

That’s part of the marketing scheme surrounding these cards. They’re supposed to be impulse buys that most people get when they’re making a purchase. If you had to wait a lot of time for approval you’d probably think the decision through, do more research and give up on it. 

Many credit cards for people with poor score currently are actually store credit cards. But don’t be fooled, some retail brands are working their way around that. Amazon, for example, offers a card in partnership with Visa that is a lot harder to get approved for. 

Things to take into consideration before getting a store credit card

There are advantages and disadvantages to a store credit card. So how do you know if they’re a good deal or not? Here is some information you must pay attention to before closing the deal. 

1. Credit background

Once you open a store credit card it becomes part of your credit history. Which means that any missed payments or limit usage will be reported to bureaus and impact on your credit score. While people with a longer history probably won’t feel such a dip in the numbers, using the card badly can impact a lot on a consumer who’s new to credit. 

Ideally, you should give some thought before opening a card. If you’re new to credit and this seems to be the only option, you can still do some research. There are some cards with lower interest rates or advantages that should weigh on your decision. 

2. Limit offers

There is no way around this: limits are low for this type of card. Your first concern when it comes to this is: how much of that limit are you planning on using? Remember that this will impact your utilization ratio, which could make your score lower with time. 

However, people who really need a credit card and are afraid of the temptation of a high limit might find this a better option. After all, you’re unable to make big purchases thanks to this. Initial limits can be as low as US$300. 

Check if there’s a possibility of increasing your limit over time, which could help your score greatly. 

3. Interest rates available

The rates offered are rarely very competitive and we understand why. Store credit cards are considered a high risk investment for creditors, since the background check is light and you don’t need a great score to apply. 

Considering the odds that point to people not paying on time, creditors are forced to keep rates high. While you may not be bothered by this, since timely payments allow you to suffer 0% interest, people with a history of missing deadlines might be worried. 

Be careful not to miss payments. Setting alarms on your phone could help, and always remember to pay the balance in full. 

4. Where you can use the store credit card

When you get a store credit card you have limited purchasing options. Generally, it involves shops in the same group or a few partners. This means that, unless you’re a really frequent shopper, getting this type of card might be pretty useless. 

5. Possible rewards

Rewards plans are always part of the offer for these types of cards. While you might find them attractive at first, are they actually worth it? Frequent shoppers really can do with an extra discount or a gift after a few purchases. However, you must consider carefully how helpful they’ll actually be. 

If possible, compare these reward programs to other credit cards on the market. Afterwards you can decide if they’re attractive. 

6. Are you prone to overspending?

Not everyone should get a new credit card with rewards programs based on how much and how often you shop. Those who have a tendency to overspend will find out that this is a trigger for impulse buys, which include a lot of items you don’t actually need but look attractive because of discounts and prizes. 

We can say the same of buying bulk or being part of discount shopping groups. Anyone who has a history of spending a lot on unneeded items or impulsiveness should be careful not to fall into this trap. 

Does a store credit card affect your score? 

If you research more deeply about a store credit card you’ll find out they’re known for helping to build your score. But we’ve already mentioned some of the pitfalls hidden in this credit line, could it be they’re actually a danger for you? 

As with everything in finance, this depends a lot on how you’re using it. We’ll show you the main disadvantages of these cards, but be aware that you must compare them to your own credit history and see if they apply to you. 

1. It has a lower limit

Credit utilization ratio corresponds to 30% of your credit score. To calculate it, you must add up all the limits of your cards and add your balances. Afterwards, divide your spending by the overall limit and multiply by 100. That’s the percentage that your credit report is probably showing. 

FICO recommends that you keep your ratio below 30% so that it won’t affect your score negatively. Which is a problem when it comes to store cards, since they have naturally low limits. On a normal card spending US$100 might not mean much, but in a US$300 limit retail one that equals 30% of your limit already. 

So if you plan on purchasing a lot, maybe this isn’t the right choice for you. Those who are starting to build credit and just want to make small payments on it, however, have a good chance to start their history. 

2. It generates a hard inquiry

A hard inquiry is the type of credit score checking that leaves a mark on your report. It happens when possible creditors research your history before you are approved for a loan, a mortgage, insurance or… A store credit card. 

Having a lot of checks in a small period of time is a sign of financial insecurity for reporting bureaus. This means that, if you had your score checked not too long ago, getting a new card is quite the bad idea. 

3. Credit age

These are one of the few options available for people who are new to the financial world. Credit history corresponds to 15% of your report and score, which means that more advantageous credit cards are off limits for these people. 

When you get a store card, you start building your history. Almost all of these creditors report your data monthly to agencies and in a few months you’ll see an increase on your score. At least that should happen if you keep payments in check. 

Can a store credit card help your score?

They can help you as long as you’re careful when using them. Be mindful of impulse buys and don’t get fooled by the rewards programs that attempt to get your purchase, even if you don’t need the product. 

By keeping monthly payments on time and using just a bit of your limit, you’ll be able to improve your credit score with time. This is an option that we recommend mostly to anyone with short credit history that has no better options, but checking it case by case is important.