Do store credit cards hurt or help your credit score?

 Posted on May 15, 2024 in Credit Card Debt

Store credit cards can be tempting offers, especially when they promise discounts and rewards for shopping at your favorite stores.

Credit reporting agencies view accounts associated with retail stores in a slightly different way from other consumer credit cards. So before you sign up for one, consider how store credit cards can change your credit score.

Positive impacts

One of the primary ways store credit cards can help your credit score is by allowing you to build a positive credit history. Making timely payments on your account demonstrates to creditors that you can manage credit responsibly. This positive payment history can boost your credit score over time.

Having a mix of credit types can also benefit your credit score. Store credit cards represent a different type of credit than traditional credit cards or loans, so having a store card in your mix can show lenders that you can handle various types of credit.

Some store credit cards offer rewards programs that save money on future purchases. By using your store credit card for purchases you would make anyway and paying off the balance each month, you can take advantage of these rewards without incurring interest charges.

Negative impacts

Store credit cards can also hurt your credit score if you are not careful. They often come with high interest rates, so carrying a balance can lead to significant interest charges. A steadily increasing balance can make it challenging to pay off your debt.

Additionally, using a large part of your available credit on a store credit card can lower your credit score. Credit scoring models consider your credit utilization ratio, which is the amount of credit you are using compared to your total limit. Keeping your utilization ratio below 30% is ideal for maintaining a healthy credit score.

Store credit cards can either hurt or help your credit score, depending on how you use them. However, the average balance for those who use store credit cards is $1,167, so you must be careful not to rack up more debt than you intended.