How Store Credit Cards Impact Your Credit

rebuilding credit

These days it seems that everywhere you go, no matter which store you’re in, someone wants to sign you up for a new store credit card. Whether shopping for apples or zip-ties, the checkout clerk is often certain you need to save 10% on your purchase by applying today — and by the time they’re done describing the many benefits of your new card, you may begin to feel pretty certain, too.

However, just because the card offers you a nice discount doesn’t mean you should hop on its bandwagon. What many people often forget about the temptation-rich store credit card is the “credit card” part. The plastic may say “Kohls” instead of “Chase,” but that doesn’t make it safe; a store credit card can have just as much of an impact on your credit score as its more traditional counterparts.

Store Cards Can Have Real Credit Impacts

To start, the initial application for a store credit card comes with the same hard pull of your credit report as for any other credit application. Depending on the state of your credit, that hard pull can cause your FICO score to drop by as much as five points and your VantageScore by 10 to 20 points. If you have any major purchases coming up for which you might need a loan, such as a vehicle or house purchase, avoid opening any new credit accounts, including store credit cards.

Once you’ve applied, just as with a regular card, the issuer will consider your entire credit history before deciding whether to approve you. Despite popular lore, while store credit cards may be a bit easier to get than other types, stores (or, more specifically, the banks backing the stores’ credit cards) do not simply approve anyone who applies for a card. Those with less-than-perfect credit will have the best luck applying for a privately backed card (one without a major issuer logo). That said, if your poor credit is preventing you from obtaining even a store credit card, you may need to consider a subprime issuer who specializes in credit cards for bad credit.

At the other end of the spectrum, not only does applying for a store credit card impact your credit, but so too can closing an old one. Depending on how long you have had the card — and the age of your other accounts — you may actually see a dip in your credit score from closing a store credit card. The average age of all of your credit accounts combined is one of the main factors that goes into calculating your credit score.

On the Plus Side

While it may sound like a lot of negatives, store credit cards (and credit cards in general) aren’t all bad. The responsible use of a store credit card can have many of the same positive impacts to your credit score as would a non-store credit card. For instance, by avoiding late or missing payments on credit cards that report to all three credit bureaus, you can demonstrate positive credit behavior, improving your credit score and your chances of being approved for future credit.

Additionally, not only do many stores have special coupons exclusively for cardholders, but most stores will stack the cardholder discount with in-store coupons. Example? Pair a great Kohl’s coupon with the 25% discount for opening a Kohl’s charge card and you could save hundreds off your purchase.

Spend Wisely

Regardless of your reasons for opening the card, be it for the discounts, the peripheral perks, or simply to improve your credit, always be wary of carrying a balance on a store credit card. Store cards come with notoriously high interest rates that can quickly negate any savings from an in-store discount. To illustrate this point, let’s consider a shopping trip where $100 worth of items are purchased with a store card. If we say the initial savings from using the store card is 10% (or $10), it leaves a $90 balance on the card. By paying the minimum monthly payment of $5 and carrying the rest of the balance, it would take almost two years to pay off that shopping trip — and it will cost $21 in interest charges.

If you’ve already given into temptation — or a particularly convincing checkout clerk — a few too many times and gotten in over your head with store credit cards, you’ve likely already seen the negative effects they can have on your credit. While getting a handle on your debt is the first step toward rebuilding your credit, it isn’t always easy, especially if the debt is spread across multiple accounts. In this case, working with a reputable debt relief company can be the best way to establish a plan to get back in charge of your finances.

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