Are Retail Store Cards Good for Your Credit?
If you are researching the topic of how to build better credit you will probably receive a lot of conflicting advice. Your loved one or family member might recommend that you should avoid credit cards and retail store credit cards all together. (Pro tip: Credit card avoidance is generally a bad idea.) You might read online that you need to open a credit card and revolve a balance on your new account from month to month instead of paying the balance off in full. (Pro tip: This is another bad idea, at least when it comes to revolving a balance.) Unfortunately for you, the consumer, it can be confusing and quite difficult to know which credit advice you should actually follow and which advice you should ignore.
The topic of retail store credit cards and your credit is no different. If you try to research whether retail store credit card accounts are good for your credit or bad for your credit, you will find a lot of different opinions. The truth, however, is that there is no blanket answer which can accurately tell you whether these types of accounts will impact your credit positively or negatively. The truthful answer is that whether a retail store credit hard helps or hinders your credit rating will all depend upon how you manage the account.
Keep reading below to learn about some of the potential pros and cons which are associated with retail store credit card accounts. By educating yourself you will be better equipped to make an informed decision regarding whether or not to use these types of accounts as a part of your credit building (or rebuilding) strategy.
The Cons of Retail Store Credit Card Accounts
“Did you find everything you need? Great! Would you like to save an extra 20% off your purchase today by applying for our store credit card?”These are the words, generally heard at the checkout counter, which often proceed a consumer’s decision to apply for a new retail store credit card account. However, the truth is that making an impulse decision to apply for credit can often be a bad idea.
We will discuss the potential cons from a credit score standpoint further below, but it first worth noting that retail store credit cards have the potential to be quite expensive. The reputation which these types of accounts have earned for being expensive is due to the fact that the interest rates on retail store credit cards are typically high, even if you have great credit and high credit scores.
In addition to being expensive, retail store credit card accounts have the potential to damage your credit scores in 3 different ways.
- The Credit Pull – When you apply for a new retail store account the card issuer will access a copy of your credit report from 1 of the 3 major credit reporting agencies (Equifax, TransUnion, or Experian). This credit report access is known as a hard inquiry and it does have the potential to harm 1 of your credit scores (albeit probably not by very much).
- The New Account – Another problem you should mull over is the fact that opening a new retail store credit card account will lower the average age of accounts which appear on your 3 credit reports. Why does the average age of the accounts appearing on your credit reports matter, you may ask? It matters because credit scoring models like FICO and VantageScore will consider the average age of your accounts when calculating your credit scores. The older the average age, the better from a credit score standpoint. As a result, it is possible that you might see your scores impacted negatively by your new retail store account.
- Utilization Problems – FICO and VantageScore’s credit scoring models were also designed to be very concerned with the debt to limit ratios on your revolving accounts (i.e. traditional credit cards and retail store cards). As a result, when you use a high percentage of your available credit limits that action can have a negative impact upon your credit scores. Since retail store credit cards are notoriously issued with low limits (even to applicants with great credit scores), it can be very easy to over utilize or to even max out these accounts. Either action could potentially send your credit scores sliding in the wrong direction.
The Pros of Retail Store Credit Card Accounts
As you have already read above, there are a lot of potential credit problems which can accompany retail store credit card accounts (not to mention the fact that you can waste your hard earned money on high interest fees). Yet, in fairness, retail store cards are not all bad either. There can still be a place for retail store credit cards in your credit building strategy as long as you manage the accounts properly.
The biggest check in the “Pro” column for retail store cards is the fact that these accounts often feature easy approval criteria. In other words, even people with no credit or damaged credit histories may still be able to qualify for a retail store card. This can make these accounts a good potential choice for someone who is trying to establish or reestablish new, positive credit history.
Of course, every credit card issuer is different and it can still sometimes be difficult to qualify for even a retail store account. You should always inquire about a lender’s specific qualification standards which are required before you apply for any new account. Additionally, secured traditional credit cards typically offer the easiest-to-meet approval criteria, often making them an even more attractive choice for the consumer who is trying to rebuild damaged credit or trying to build credit for the very first time.
Also Read: More about “The Credit Pros”
If you do ultimately choose to open a retail store credit card account keep in mind that it is very important to both make every monthly payment on-time or early and also to keep the balance on the account paid off in full each month. A mere $300 balance on a retail store card with only a $300 limit could have a significantly negative impact upon your credit scores.