How Retail Store Cards Can Impact Your Credit
SAN JOSE, California, December 7, 2021 / PRNewswire / – As you’re shopping for family and friends on your gift list this holiday season, there’s a good chance you’ll come across an offer to apply for a retail store credit card. In fact, you might even get a special discount or rewards at your favorite store if you open a new account.
However, before you jump at the chance to stretch your vacation budget, it’s important to consider the impact of a store card application on your credit. There are safe ways to open a new retail credit card, but if you’re not careful how you use the account, it could impact your credit score. Here are some tips on what to consider when applying for a store card from myFICO.
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You can use store credit cards to accumulate credit
Store credit cards act like traditional credit card accounts in several ways. One of the biggest similarities between these two forms of plastic is that they both have the potential to help you build your credit.
With most store accounts, a bank issues the card which is co-branded with a retailer. Depending on the card, you may be able to use it only with a specific set of retailers or you may have the freedom to use the account on a larger basis.
Either way, if the issuing bank reports the account to the major credit bureaus, the account should show up on your credit reports. Once this credit report component occurs, the retail store card has the ability to help you establish or build your FICOÂ® score.
The credit check
Whenever you apply for a new credit card of any type, the issuing bank will likely want to review a copy of your credit report. When this happens, the credit bureau that shared your information will post a credit investigation. In some cases, a new credit check could result in a lower FICOÂ® score.
It is important to note that the FICOÂ® scores only take into account serious investigations that have taken place in the last 12 months. And some requests will have no impact on your FICO score.
Applying for new credit is likely to have minimal effect on your FICOÂ® score. In many cases, adding an additional claim to your credit report can result in a reduction of less than five points in your FICO score. However, the actual impact of a credit investigation may differ from one credit report to another.
Mistakes to Avoid with Retail Credit Cards
When opening a new retail store credit card, it is important to handle the account with care. Retail cards that report to the credit bureaus can influence your FICOÂ® score like any other credit obligation.
Below are three mistakes to avoid with your new account.
- Never pay late. Payment history represents 35% of your FICOÂ® score. So if the retail card on your credit report says late payments, you might see your score drop.
If you open a retail card that you can only use in a limited number of slots, you might forget the account (out of sight, out of mind.) However, you can schedule automatic drafts and calendar reminders to help you. avoid this potential pitfall.
- Don’t overdo the credit limit. FICOÂ® scores also pay attention to the percentage of your available credit used, i.e. your use of credit rate. When your credit usage rate is high, it can negatively impact your FICO score.
Credit limits can sometimes be lower on store credit cards compared to general purpose accounts. And with a lower credit limit, it may be easier to use up a large percentage of your available credit. This could cause your credit utilization rate to increase, thereby reducing your FICOÂ® score.
To avoid this problem, be careful not to maximize your account. You can also consider paying your bill earlier, before the statement closing date, so that your card issuer reports a lower balance to the credit bureaus.
- Avoid carrying a scale. As mentioned, renewing a balance on a store credit card can increase your credit usage rate. But this financial habit could also cost you dearly.
When you keep a balance on a credit card – retail or traditional – interest charges may apply. Interest rates on credit card debt tend to be high. So it is best to pay off your total credit card balance each month to avoid this additional cost.
If you are working to pay off your credit card debt, having a plan helps. You can use the list of myFICO credit card calculators to help create one that works for your situation.
Store credit cards can come in handy if you’re trying to accumulate credit. They can also be a convenient way to pay for purchases at a retailer you frequent. In some cases, you might even earn rewards on your spending that you could use for future savings.
Yet, as with any other type of account, how you manage a retail credit card will determine the ultimate impact it will have on your credit, and on-time payments and low credit usage rates should. protect against credit related damage. And over time, the account could help you build a positive payment history.
myFICO makes it easier to understand your credit with FICOÂ® Scores, credit reports and alerts from the 3 bureaus. myFICO is the consumer division of FICO – get your FICO scores from the people who do the FICO scores. For more information visit https://www.myfico.com.