Store credit cards can help build credit, if you use the card wisely. Store credit cards report your payment history to the credit bureaus the same as a regular consumer credit card. If you make timely payments for more than the minimum due, and stay within your credit limit, a store credit card can go a long way in building, or even rebuilding your credit.
A store credit card is a card offered by a retailer. It’s not to be confused with a charge card, in that a store credit card does not require you to pay off the entire balance every month. Store credit cards are also known as closed-loop cards, which means it can be used only for purchases within the store, its website, or affiliated stores. Retailers may also offer open-loop, or co-branded store cards. They’re store cards, but they’re on a credit card network such as Visa and Mastercard, and can be used anywhere the network’s cards are accepted.
You can use a store credit card to help build credit because they’re generally easier to get. Most store credit cards require a minimum fair credit score to have a chance of being approved. The drawback is that you’ll likely start out with a higher interest rate and a lower credit limit than you would with a co-branded credit card. Co-branded store cards also come with stricter approval requirements.
Where you can run into trouble with a store credit card is the temptation to overspend. Your favorite retailer may bombard you with promotional offers, discounts and sales announcements. It’s pretty easy to make additional purchases in the store, or online, thinking your sales item purchases will make up the difference.
In the end, you’ll end up canceling out any discounts and burning up most of your credit limit. That doesn’t bode well for your utilization, which should be at less than 30% of your available credit. And then there’s the interest that will be tacked on if you have to carry a balance to the next month.
Speaking of interest, be wary of any 0% promotional offers, particularly for large purchases. Unlike a 0% APR you’ll find on some regular credit cards, store cards operate on deferred interest. If you don’t pay off the balance by the end of the promotional period, you’ll be charged all the interest accrued on the original purchase price.
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