{"id":9670,"date":"2021-12-17T12:00:00","date_gmt":"2021-12-17T18:00:00","guid":{"rendered":"https:\/\/www.lexingtonlaw.com\/blog\/?p=9670"},"modified":"2024-05-06T12:18:50","modified_gmt":"2024-05-06T18:18:50","slug":"retail-store-credit-cards-and-how-they-impact-your-credit","status":"publish","type":"post","link":"https:\/\/www.lexingtonlaw.com\/blog\/credit-cards\/retail-store-credit-cards-and-how-they-impact-your-credit.html","title":{"rendered":"Do store credit cards hurt your credit?"},"content":{"rendered":"\n
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The information provided on this website does not, and is not intended to, act as legal, financial or credit advice. See Lexington Law\u2019s editorial disclosure for more information.<\/a><\/em><\/p>\n\n\n\n

Picture this: you\u2019re at your favorite store and you\u2019re about to make a big purchase. The cashier informs you that you could save a lot of money on this transaction (and future ones) by signing up for a store card. Before you sign up, you might wonder whether store credit cards can hurt your credit.<\/p>\n\n\n\n

Store credit cards can seem appealing in the moment. But just like with any other credit card, shoppers should know that retail credit cards<\/a> can affect your credit both negatively and positively. Understanding the benefits and drawbacks can help you decide if store cards are right for you and help ensure you use these cards responsibly.<\/p>\n\n\n\n

What is a store credit card?<\/h2>\n\n\n\n

Store credit cards are offered exclusively by retail stores to finance transactions with that specific retailer. Often, customers are interested in signing up for store credit cards with their favorite retailers because these cards come with extra discounts or points that can be used at the store.<\/p>\n\n\n\n

In many ways, a store credit card is like a regular credit card. The card is a type of revolving credit in which a predetermined amount is available to you every month. Your card also comes with an interest rate based on your credit score. If you don\u2019t pay your balance in full at the end of the month, you\u2019ll be charged interest on the outstanding balance.<\/p>\n\n\n\n

Unlike a typical credit card, you usually can\u2019t use your store credit card at other places\u2014like to pay for gas or groceries. Credit cards that can be used only with a specific retailer are private label cards. On the other hand, co-branded cards, where the retailer partners with Visa, Mastercard or American Express, can be used in many places.<\/p>\n\n\n\n

Plus, you should know that store credit cards often come with lower credit limits and higher interest rates compared to standard credit cards.<\/p>\n\n\n\n

How do store credit cards affect your credit?<\/h2>\n\n\n\n

Like a regular credit card, a store card can affect each of the five main factors making up your credit score.<\/a> It can impact these factors in both good and bad ways.<\/p>\n\n\n\n

Payment history<\/h3>\n\n\n\n

Even if this store card gets you lots of discounts and can only be used at a single retailer, don\u2019t make the mistake of forgetting it counts as a regular credit card. If you miss or make late payments, the retailer can report this detail to the credit bureaus. Even one of these instances can bring your credit score down by several points. Additionally, missed and late payments can stay on your credit report for up to seven years.<\/p>\n\n\n\n

However, the same is true of the opposite. If you make on-time and full payments, this will positively contribute to your payment history and can even increase your credit score.<\/p>\n\n\n\n

Credit utilization<\/h3>\n\n\n\n

As we mentioned, store credit cards typically come with lower credit limits. However, if you have a card at your favorite store, you may be tempted to spend a lot with this card. The combination of a lower limit and higher spending isn\u2019t necessarily great news for your credit utilization.<\/p>\n\n\n\n

Credit utilization<\/a> is the credit you have available to you versus the credit you use. Generally, it\u2019s best to keep your credit utilization ratio below 30 percent to avoid negatively impacting your credit score.<\/p>\n\n\n\n

So let\u2019s say you have a credit card with a limit of $5,000. Each month, you use $1,400, so your credit utilization is at 28 percent, which is good. However, you then sign up for a $500 store card with your favorite retailer and spend $450 a month there. Now your total available credit is $5,500 and you\u2019re using $1,850, so your new credit utilization is 34 percent\u2014which is above the recommended amount.<\/p>\n\n\n\n

Alternatively, your utilization ratio could actually benefit if you got a store credit card and didn\u2019t use it much, because you\u2019d be increasing the amount of available credit you have without significantly increasing your usage.<\/p>\n\n\n\n

Credit age<\/h3>\n\n\n\n

If you are young or have thin credit, a store credit card might be one of the only cards you can get approved for. Generally speaking, retailer cards have much more lenient qualifications for approval. If you use the card responsibly, this can be a great way to start adding to your credit profile.<\/p>\n\n\n\n

Hard inquiries<\/h3>\n\n\n\n

When you apply for new credit\u2014including a store credit card\u2014the lender will typically make a hard inquiry<\/a> into your credit. A hard inquiry will initially drop your credit score by a few points. However, this should only last for a few months, and your credit score will recover quickly. There\u2019s not really a way for a hard inquiry to help your credit, but it\u2019s a necessary step when you want to get new credit.<\/p>\n\n\n\n

A note of caution: while one hard inquiry doesn\u2019t do too much damage, multiple hard inquiries in a short period can drastically drop your credit score. To avoid this, make sure you don\u2019t apply for any other new credit for a while after getting your store credit card.<\/p>\n\n\n\n

Credit mix<\/h3>\n\n\n\n

A store credit card can add to your credit mix. Having a diverse credit mix\u2014including things like credit cards, car loans and so on\u2014can show you\u2019re a responsible borrower who can manage all types of credit accounts.<\/p>\n\n\n\n

Benefits of store cards<\/h2>\n\n\n\n

Aside from potentially helping your credit, there are other benefits to store credit cards that you should consider:<\/p>\n\n\n\n