Store credit cards can have the same impact on your credit score as standard Visa, MasterCard, or Amex cards. To the credit reporting bureaus, they represent another outstanding balance. That’s the simple explanation, but there’s more to it than that. Your credit score will change the moment you apply for a store credit card, and several times after that while you use it.
Before applying for a store credit card, ask about the interest rate. According to Experian, the average APR on store cards is 26.4%, compared to 20.3% for traditional credit cards. For that reason, many consumers find themselves putting store credit cards at the top of their list when planning how to pay off debt. As for your credit score, here’s what you need to know:
- 1 Applying for a Store Credit Card Generates a Hard Inquiry
- 2 Store Credit Cards Are Often the First Credit Account Opened
- 3 Using Your Store Card Increases the Amount of Debt You Owe
- 4 Your Payment History Counts for 35% of Your Credit Score
- 5 Store Cards May or May Not Improve Your Credit Mix
- 6 The Bottom Line: Store Credit Cards Affect Your Credit Score
Applying for a Store Credit Card Generates a Hard Inquiry
There are several factors that go into calculating your credit score. One of them is “new credit.” This category represents 10% of your overall score and includes “hard inquiries,” which are the credit checks that stores, credit card issuers, and lenders do before they approve you. Those hard inquiries show up on your credit report and bring your credit score down a few points, usually temporarily.
Store Credit Cards Are Often the First Credit Account Opened
The length of your credit history is 15% of your overall score. Store credit cards are often the first credit cards young people receive, since the qualifying criteria is usually less stringent. The oldest credit account is how FICO calculates length of credit history, so keep the store card account open even if you no longer use it.
Using Your Store Card Increases the Amount of Debt You Owe
Amounts owed is 30% of your overall score. It’s not just a cumulative number. This category is calculated as a percentage of available credit, otherwise known as “credit usage.” Getting approved for a store credit card won’t increase that number, but using it excessively will. Be mindful of that and try to pay your full balance off every month.
Your Payment History Counts for 35% of Your Credit Score
This is the big one. Making your payments on time counts for 35% of your credit score. Taking on a new credit card means committing to another monthly payment. Can you handle that? Simply paying the other cards and skipping the new one will cost you. Missing payments or paying late will also affect your credit score. If you can’t handle that, don’t apply.
Store Cards May or May Not Improve Your Credit Mix
Another variable used when calculating your credit score is your “credit mix.” Lenders like to see a variety of credit accounts that includes credit cards, loans, mortgages, and other credit products. If you don’t already have a traditional credit card, a store card will add to this mix. This variable is weighted at 15% of your overall score, so it is important.
The Bottom Line: Store Credit Cards Affect Your Credit Score
Obviously, getting a store credit card can go either way for you. When used properly, they can help you build credit and improve your credit score. The penalty for a hard inquiry is small and drops off in a few years. Being late on payments or defaulting on the card will cause long-term damage to your score. Be conscious of that and proceed with caution.
Kevin is a former fintech coach and financial services professional. When not on the golf course, he can be found traveling with his wife or spending time with their eight wonderful grandchildren and two cats.