Store credit cards are commonly offered with almost every purchase made by you at a retail store. The USP of a store credit card is that it comes with an additional percentage discount on all your purchases from the card-issuing store and additional perks like free shipping and no-questions-asked returns. These cards are issued to promote customer loyalty.
As per research, store credit cards are also referred to as retail credit cards and they come broadly in two varieties: open-loop and closed-loop. Open-loop cards are affiliated to a payment network like MasterCard or Visa and can be used for transactions at all places where the network cards are accepted. With a closed-loop card, you only have the option of using it for making purchases at stores of the card issuer. According to Tanesha’s Take: Wal-Mart Credit Card, users have the benefit of not having to pay any annual fees on the Walmart card.
How Do Retail Store Cards Impact Your Overall Credit History?
Retail Store Cards could hurt or help your credit history depending on the way you use them.
Credit Inquiries: Whenever you are applying for a credit card, a hard inquiry is performed by the issuer on your credit report. While just one hard inquiry does hurt too much, multiple hard inquiries will result in a greater impact on your credit score especially if you have only a few accounts or relatively a shorter credit history. If you apply for many store cards in one go, you can end up hurting your credit rating simply because it indicates to your creditors that you may be experiencing financial trouble.
Credit Utilization: Since store credit cards are typically known to provide relatively lower limits as compared to usual all-purpose cards, retail cards may end up increasing your overall credit utilization rate. Credit utilization is the amount of all your revolving balances divided the total of all your credit card limits. This is a key factor and could influence as much as 30 percent of your FICO credit score. Some credit gurus recommend a credit utilization rate of a maximum of 30%. However, purchases of over $150 on a card limit of $500 will take you beyond that so the utility of a store card for regular shopping is questionable. Of course, if you have a good credit score to vein with, you will be eligible for a higher card limit.
Payment History: Just like your usual credit cards, even store credit cards report your payment history directly to all the credit bureaus. If you make your due payments on time it helps to boost your credit score. Missing payments or make late payments signify that you may be experiencing financial issues and your credit score is lowered by the bureaus.
Store credit cards must be treated similarly as your usual credit cards. You should try to repay the full statement balance by the due dates every month and be conservative in using your store credit card. If you do most of your shopping at a particular store, getting its card can give you several benefits, including larger discounts and useful perks.